What is the matter?
On 14 February 2018, the Indian banking sector was shocked when a case of big bank fraud came up in a completely new way. On that day, the Punjab National Bank (PNB) of the government sector said that a fraud of Rs 11,400 crore has been done at one of its branches in Mumbai. PNB filed a complaint with the Central Bureau of Investigation (CBI). In its complaint, PNB said that the billionaire diamond trader, along with some officials, executed this fraud with the help of fake bank guarantee.
How did Nirav Modi execute this fraud?The bank said that money was withdrawn from the overseas branches of Indian banks with the help of Letter of Undertakings (LoU). The money was withdrawn from the Indian banks, which had links with the Nirav Modi and Geetanjali groups. LoU is a kind of bank guarantee that ensures that if the company or person defaults, the bank issuing it will pay the money.
Also read: Big success in Nirav Modi case! Fugitive diamond trader to be brought to India, UK court order
Apart from PNB fraud, Modi is facing two other cases. The first is to ‘try to make evidence disappear’ and the second is to ‘intimidate witnesses or threaten to kill them’. It is believed that Nirav Modi left India in January 2018, while PNB has filed a case a month after this. In March 2019, Nirav Modi was arrested from London.
What is the role of Mahul Choksi?
Apart from Nirav Modi, his maternal uncle Mehul Choksi is also a prime accused in the PNB scam. Choksi also fled India around February 2018. Later Mehul Choksi got citizenship of Antigua and Barbuda under a special program. Under this program, the system is that if a person invests a large amount here, then they can get individual citizenship. A recent Enforcement Directorate charge sheet shows that Choksi has conspired to defraud customers and banks in India, Dubai and the US under an organized racket. However, Choksi claims that he has left India for medical reasons. While the investigating agencies say that Choksi has left India for fear of arrest.
Mehul Choksi, the second prime accused in the PNB fraud case.
Has PNB made up for its losses?
In april 2020 Moneycontrol In an exclusive interview with Punjab National Bank Managing Director and CEO Mallikarjun Rao said that PNB has not made any significant recovery in the Nirav Modi scam. Rao said, ‘Nothing so far, it is definitely that the CBI has seized assets worth Rs 1,000 crore recently. They have allowed us to apply to the court for the sale of these properties. We have also done this. But before the auction we have to deal with some legal obligation. However, Rao also said that its effect on the balance sheet has been rectified as we have fully compensated for the loss.
Also read: Nirav Modi extradition: how CBI got second success, know the agency’s ‘new working style’
Who can be accused of PNB fraud?
It has been said many times that due to technology, fraud like PNB has become possible. It is argued by those who say that due to lack of integration in SWIFT software and core banking, such fraud has become possible. After this fraud, the Reserve Bank of India (RBI) tightened the rules and asked banks to deal with this problem quickly. But, top bankers say that the failure to comply with the earlier system and rules has played an important role in this fraud. This has been ignored for many years.
One thing is being considered in this whole case that PNB has failed in monitoring the transactions through LoUs from the beginning. This fraud started in 2011. The bank used to fulfill all these payments before the information about this fraud among common people.
What was missing at PNB level?
In the PNB case, the SWIFT messaging platform used by the accused bank officials was used. This should be checked daily by the branch manager. It is mandatory in any bank. Even after this, the branch manager has to match the income and expenses of his branch every day. It is the responsibility of an officer in the branch to keep an eye on any suspicious transaction. Such information can also be collected about such fraud. Despite this omission on its part, PNB has consistently emphasized that this fraud has become possible due to a flaw in the SWIFT software. PNB also said that this happened because of the loss of all connections to the core banking system ie CBS.
Also read: Important news for bank customers! PNB changes the rules related to money transactions, will be applicable from April 1
What was the reaction of the regulator?
After the PNB fraud surfaced, the RBI terminated all the LOUs as an instant action. Earlier, RBI did not get any idea about this fraud. After the fraud came to the fore, questions were raised on the regulator, so he took action against LoU. LoU is used by importers and exporters. They use it because it is a cheap instrument for them. But the RBI banned it without considering it.
Overall, PNB fraud is not a financial crime that was carried out by only two traders. This case has highlighted the flaws in the risk management infrastructure of Indian banks. It has also been revealed that only bank officials can cheat banks with collusion by any effective person. However, in the future, it will be known whether the extradition of Nirav Modi will compensate the loss in this fraud.