The staggering Rs 23,000-crore ABG Shipyard scam starkly shows up the extent of the rot in our banking system. It also raises several questions about the effectiveness of the audit, monitoring and control systems in the banking sector, and of course, the possibility of a political nexus as well. The CBI has registered a case against the bankrupt Gujarat-based shipbuilding form, as well as its promoter and directors, for alleged fraud. This has also triggered a political war of words between the Congress and the BJP, with the former alleging collusion in the ‘loot’ of bank funds, pointing to the inexplicable delay in investigations and registering of a case, and the fact that the scam occurred in Gujarat, which has been ruling Gujarat since 1995. The BJP on its part, has alleged that the scam occurred during the Congress-led UPA regime. Blame games apart, the delay is puzzling. ABG Shipyard had turned a defaulting account as far back as 2013. But the State Bank of India, one of the lenders in the 28-bank consortium led by ICICI Bank now embroiled in the case, identified the fraud in January 2019, but filed a complaint only in November, 2019. It took more than two years for the CBI to book a case against ABG Shipyard, its chairman and managing director Rishi Kamlesh Agarwal and other directors.
It is also clear that bank frauds are a deep-rooted systemic problem, involving the collusion of corrupt bank and public officials, as well a close nexus with the political class, without whose sanctuary and protection, the fraudsters would have been unable to pull off such heists with impunity. According to RBI data, in the financial year 2020-21, there were 7,363 cases reported, involving a sum of Rs 1,38,422 crore. The previous year had seen 8,703 cases involving Rs 1,85,468 crore. However, as the ABG Shipyard case clearly demonstrates, a good proportion of the Rs 8 lakh crore of non-performing assets (NPAs) with the banking system could be the result of fraud and collusion, not just a bad business environment or poor judgment. The scam also points to the failure of both internal checks and balances within banks, as well as the banking regulator RBI in detecting these frauds in time. All banks have internal as well as external auditors, quite apart from the statutory inspections by RBI auditors. That all these audits failed to detect outright fraud – it has now come to light that the ABG Shipyard promoters floated as many as 98 fake firms to siphon away the funds, even as the shipyard bagged major contracts from the Coast Guard and Navy.
Rather than trying to shift blame, the government should focus on investigating the scam thoroughly. Unless accountability is fixed on all concerned – not just the promoters and other company officials, but bank officials, auditors and other supervisory and oversight bodies, and exemplary punishment meted out, such frauds will continue with impunity.
