PNB Swindle: Another Day, Another फटका to Taxpayers

Government-run Punjab National Bank (PNB) reported yesterday that fraudulent transactions of about ₹ 11,400 crore has been detected at one of its branches in Mumbai.

It was reported that the fraud was perpetrated by bank employees who issued authorised bank guarantees to jeweller Nirav Modi’s companies without making any entries in the bank’s books. In response, PNB has now suspended 10 employees.

PNB is not unique in this. All Public-Sector Banks (PSBs) suffer from instances of fraud. According to an IIM-Bangalore study, a total of ₹ 22,743 crore was lost by various PSBs due to banking frauds between 2012 and 2016.

Businesses make loss all the time. Those that keep making losses are forced to shut down. Businesses also gets defrauded from time to time. Nothing extraordinary about it. The frequency and amount of such frauds and losses depend on how much due diligence they have done about the people they do business with and what kind of checks and balances they have put in place.

However, PNB is not an ordinary business. It does not have to worry about trivial things like serving their customers in the best possible manner, or competing with other banks, or being efficient to save cost and maximise profits for its shareholders. PNB is above all this. In fact, all government-run banks and enterprise are above such mundane considerations. And why shouldn’t they be? If they make losses or commit frauds, the cost is borne by all taxpayers.

It is not that private banks in India are free of all frauds and losses. The big difference is that when a fraud is committed at a private bank, the cost is borne by the bank and the bank alone. This incentivises them to be extra careful in future and to plug all the loopholes. No such incentive exists for government-owned PNB and other PSBs.

Till the time we have government-owned banks in India, news of such swindles will continue to hit the headlines and the taxpayers will continue to bear the cost.

READ MORE: How can corruption be eliminated from India?

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