Nirav Modi tip of the iceberg, says Romesh Wadhwani

The serial entrepreneur and philanthropist described non-performing loans as an endemic problem in Indian banks


Ritu Jha

There are far bigger scams in India than the $1.8 billion bank fraud attributed to diamond merchant Nirav Modi, according to entrepreneur and philanthropist Romesh Wadhwani.

Sharing his thoughts further on the case involving Modi and Punjab National Bank fraud case, Wadhwani told indica, “I would say there is a temporary scandal mania where everyone wants to know about the latest scandal.”

Wadhwani, added, “The bigger question is [that] Indian banks have a lot of non-performing loans and that needs to be addressed.”

Wadhwani, the founder, chairman, and CEO of Symphony Technology Group, a serial entrepreneur who also co-founded The Wadhwani Foundation, had experience dealing with Indian organizations, among other things having recently established the Institute for Artificial Intelligence at Mumbai University. He himself earned his engineering degree from IIT-Mumbai before going on to earn his MS and Ph.D. at Carnegie Mellon University.

He said that while PNB may be one egregious example, there are some banks that are extremely well managed and well capitalized but others that needed to be looked at.

One solution, he said, lay in technology.

“AI [artificial intelligence] should be able to predict and detect future fraud. So, if this was fraud, probably it would have been [detected],” Wadhwani said, adding that the next generation of fintech technology is going to be very helpful as it would help to identify these problems before this happens.

It was in February this year, that Nirav Modi global diamond jeweler with 17 stores worldwide, came under scrutiny over allegedly working with former PNB employees to get fake letters of undertaking to get $1.8 billion in loans from abroad.

According to a report in The Economic Times, state-run banks have reported as many as 8,670 “loan fraud” cases totaling Rs 61,260 crore ($9.4 million) over the last five financial years up to March 31, 2017.

The technology used by the bank allowed its employees to bypass the internal system and carry out transactions.

Also, according to Indian media reports, the Serious Fraud Investigation Office (SFIO), has summoned ICICI Bank chief Chanda Kochhar and Axis Bank’s Shikha Sharma for facilitating loans to the Gitanjali Group, owned by Modi’s uncle, Mehul Choksi,

Tarun Wadhwa, founder and CEO of Day One Insights and a visiting instructor at Carnegie Mellon University’s College of Engineering, was less confident about the role technology could play in stopping corruption.

“There are several ways technology could have been helpful here, but really it comes back to the people in charge and their motivations,” Wadhwa told indica.

“For one, these letters of understanding issued by the Mumbai bank should be have been serialized and tracked in a database of some kind,” he said. “The bank should be responsible for having audit logs of what employees are doing what and when. The fact that the extent of damage hasn’t even been uncovered yet speaks to how many basic things went wrong.

“We don’t need cutting edge technology here, just more responsible intermediaries. There are also many technologies that can be used to track individual employees and what they are doing,” he said while conceding that “AI and fintech can certainly play a helpful role.”

He addressed the matter of using technology to detect anomalous behavior.

“This is software that learns about an environment, how everyone interacts with it, and then can notify somebody when something unusual happens. So, if a person who has a history of making small transactions, all of a sudden moves all the money into a different account a computer can automatically flag that as suspicious and alert the relevant parties. This is likely done on a small scale already, but technologies such as Deep Learning are taking this to the next level.”

As Wadhwa put it, “Fintech is not always AI, but certainly AI is the next generation of fintech.” He added that while it could prevent scams it was not certain to stop them.

He argued that the Indian financial sector suffers from a dearth of accurate data on the population at-large.

“While the government has made some strides in providing everyone with an identification number, the system has many flaws, and needs work before it is able to handle the scale of transactions intended,” he said. “What’s needed is more information about reputation, which can be gained by tracking digital transactions over time.”

Wadhwa argued that the magnitude of fraud as a problem has also much to do with the incomplete use of basic modern technology.

He told indica that he felt the government needed to step in and provide better standards and legal protections for everyone involved.

“Blockchain technologies won’t solve this, but can be especially useful in regards to tracking assets and land ownership,” he said.

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