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Business News/ News / India/  FinMin eases pressure on PSB heads in fraud probes

FinMin eases pressure on PSB heads in fraud probes

Chiefs of PSBs won’t be personally responsible for compliance with timelines
  • The order modifies finance ministry’s earlier notice that put the onus on chiefs of PSB banks
  • Nirmala Sitharaman had assured bankers that probe agencies won’t harass them.Premium
    Nirmala Sitharaman had assured bankers that probe agencies won’t harass them.

    Heads of public sector banks will no longer be personally responsible for compliance with various timelines that have been laid down for large value frauds, the finance ministry announced on Tuesday. 

    “The government has now modified its 2015 framework on large value frauds doing away with the personal responsibility of the managing directors and chief executive officers of public sector banks (PSBs) for compliance with various prescribed timelines," the ministry said on Tuesday. 

    It said powers have been delegated by the Department of Financial Services (DFS) to the boards of PSBs to put in place a mechanism for ensuring compliance of the various timelines laid down in Reserve Bank of India (RBI) and Central Vigilance Commission (CVC) circulars. This modifies the finance ministry’s notification from 13 May 2015 that put the overall responsibility for ensuring compliance with the various timelines on bank chiefs.

    Experts pointed out the statement only specifies that bank chiefs will not be held accountable for non-adherence of timelines and does not absolve them of the fraud itself if any. “It is more like a procedural matter and the clarification will really help. However, it would be improper to stretch it to any matter of fraud or negligence that can be ascribed to anyone including the CEOs of public sector banks," said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.

    The finance ministry also told banks to set up a panel to monitor the progress of disciplinary and internal vigilance cases against bankers. “Government has separately directed banks on 27 January to set up a committee of senior officers to monitor progress of pending disciplinary and internal vigilance cases as procedural delays, on one hand, adversely affect the morale of employees and, on the other, breeds inefficiencies in the system," the ministry said on Tuesday.

    Mint reported on 28 December that finance minister Nirmala Sitharaman had instructed banks to form committees comprising general manager-level officials, to look at the vigilance-related cases that are yet to be closed.

    This, the finance ministry said in a statement on Tuesday, is part of the measures to protect commercial decision-making by banks. “The FM has repeatedly assured bankers that adequate measures would be taken to protect honest commercial decisions taken by them and distinction would be made between genuine commercial failures and culpability," the statement added.

    The ministry pointed out that Section 17A, incorporated into the Prevention of Corruption Act, requires police to take prior permission before initiating investigation against a public servant. This amendment to the Act was passed by Parliament in 2018.

    According to the ministry’s statement, the Central Vigilance Commission has also set up the Advisory Board for Banking and Financial Frauds for a mandatory first-level examination on suspected frauds in excess of 50 crore, involving public servants equivalent in rank to a general manager and above.

    A 15 January notification by the CVC said it had, in consultation with the Reserve Bank of India (RBI), formed the Advisory Board for Banking Frauds and later renamed it ABBFF.

    Mint reported on 28 December that Sitharaman had assured bankers that they will not be harassed by investigating bodies.

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    Shayan Ghosh
    Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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    Published: 28 Jan 2020, 10:02 PM IST
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