Banking scene in India is becoming curiouser and more pathetic day by day. PNB keeps increasing the size of its LOU scam periodically. As of March 13 (morning 11 a.m ), it was pegged at Rs.13,578 crore. Let us not be surprised if it snowballs further. Such is the state of managerial efficiency in one of the largest banks in India.
RBI has tried to mask its inability for effective supervision by banning LOUs and Letters of Comfort. It does not seem to realise that the problem is lack of operational risk management and not the concept of LOU.
RBI is making two mistakes. One, it is locking the stable after the horses have bolted. Second, it is using the wrong lock.
Gaps in operational risk management can manifest as losses in different areas and not in LOUs alone. Now the fraudsters know that they have milked the LOUs sufficiently. They are not fools to target the same area again. They are fleet-footed and sharp-minded enough to pick holes and reap illegitimate fruits elsewhere.
RBI needs to ensure that proper systems, checks and control are in place in the banking system. Despite best regulatory efforts, frauds can and do happen. This is no excuse for laxity.'
RBI has tried to mask its inability for effective supervision by banning LOUs and Letters of Comfort. It does not seem to realise that the problem is lack of operational risk management and not the concept of LOU.
RBI is making two mistakes. One, it is locking the stable after the horses have bolted. Second, it is using the wrong lock.
Gaps in operational risk management can manifest as losses in different areas and not in LOUs alone. Now the fraudsters know that they have milked the LOUs sufficiently. They are not fools to target the same area again. They are fleet-footed and sharp-minded enough to pick holes and reap illegitimate fruits elsewhere.
RBI needs to ensure that proper systems, checks and control are in place in the banking system. Despite best regulatory efforts, frauds can and do happen. This is no excuse for laxity.'
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