Abstract
The banking sector in India has contributed to economic growth, parity and equity while equally keeping focus on profit and social objectives. The successive prudential and regulatory reforms introduced in the banking sector have made it more robust and stronger to withstand the bubbles and external shocks. Still, the Indian banking sector in general and public-sector banks (PSBs) in particular have been suffering from the bank frauds. This study endeavors to cover the increasing incidences of banking frauds in PSBs and probes the weaknesses and chinks in the operational risk architecture at the PSBs in India. This study selects Punjab National Bank as a true representative of PSBs and treats it as a critical case study to apply the learning and findings to the PSBs in India. This qualitative analysis of the study revealed that the chinks in the operational risk control mechanism and lax corporate governance are the main reasons behind the increasing incidences of frauds at PSBs. The findings of the study showed that a strong corporate governance and compliance framework, robust risk management architecture, investment in people, technology and systems will go a long way in achieving tighter control and supervision, streamlining processes and, most of all, adhering to a culture of checks and balances.
Highlights
The reforms introduced in 1991 in the banking sector in India have contributed to economic growth, parity and equity while keeping their focus on profit and social objectives
Irrespective of the progress achieved in the prudential and regulatory realms, the Indian banking sector in general and public-sector banks (PSBs) in particular have been suffering from the poor corporate governance and unethical practices resulting in banking frauds
In the mist of the Punjab National Bank (PNB) fraud case, there is lowing suggestions can be made for improving the a need to have vigilant background checks corporate governance and operation risk manage- for the employees working in financial inment architecture at the public sector banks in stitutions
Summary
The reforms introduced in 1991 in the banking sector in India have contributed to economic growth, parity and equity while keeping their focus on profit and social objectives. The successive prudential and regulatory reforms introduced in the banking sector have made it relatively more robust and stronger to withstand the bubbles and external shocks. As per the Reserve Bank of India (RBI) report, public sector banks have witnessed as many as 8,670 loan fraud cases amounting to Rs. 61,260 crores over a period of last five financial years up to March 31, 2017. A rare and occasional banking fraud can be considered as the cost of doing business, but the repetitive and massive frauds happening in PSBs depict the deep hidden weaknesses in the risk management of PSBs
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