The caution notice that Punjab National Bank chief has issued to other bank chiefs is self revelatory for not only does it provide details of the modus operandi used, but states unequivocally that the Nirav Modi Group was maintaining current accounts with the branch and were not enjoying any fund /non fund based limits (which is a staggering breach of the banking system and how was it allowed to fester for six long years is the question that PNB management has to now answer).
None of the transactions were routed through the core banking software (CBS), again raising the question of how and why this was allowed for long without detection of anything untoward or unseemly. In what is a clear breach of all banking system rules, the caution notice then unveils Act 2 of this gigantic scam.
Which makes one wonder as to how one compromised junior official managed to circumvent the system for seven long years without any help? This is just not possible and for all practical purposes, the bank seems to hiding something. The rot obviously runs far deeper.
It says “Similar modus operandi was used by the same branch official in companies belonging to M/s Gitanjali Gems Ltd promoted by Mr Mehul Choksi (Nirav Modi’s uncle) viz Gitanjali Gems, Gili India and Nakshatra, while issuing LoUs/FLCs (Foreign Letter of Credit). These companies enjoy credit (FB and NFB) facilities. In case of FLCs, it has been found out that at the time of issuing FLC for a smaller amount by SWIFT, the transaction was routed through the CBS (a network that ensures that bank customers can operate their account from any branch, but which also monitors transactions real-time), but subsequently, amendments were made in these FLCs by substantially enhancing the amount of FLC and transmitted through SWIFT without routing these enhancements through CBS. The said official would subsequently convey via SWIFT the acceptance of Bills for the full amount of FLC to the overseas negotiating bank.”
While a detailed investigation is still in progress, the statement indicates that more bombs may well be on their way. And the banking system customer’s money remains imperiled. The notice then goes on to provide the nuts and bolts of the operation. And strangely at the core of this massive fraud are pearls. LoUs were opened in favour of overseas branches of Indian banks for import of pearls for a period of one year, for which as per RBI guidelines, the total time period allowed is 90 days from the date of shipment — once again in clear contravention of the rules.
“This stipulation was overlooked by overseas branches of Indian banks, who are also required to follow RBI guidelines. There is clear criminal connivance of group companies of Nirav Modi and Gitanjali Gems with our branch official and also apparently, with officials of overseas branches of Indian banks. None of the overseas branches of India based banks have shared with us any document/information made available to them by these Indian companies at the time of availing buyers’ credit from them,” the statement said.
Further, the notice explains how the Buyer’s Credit availed against fraudulent LOU was used either to retire import bills or replenish the maturing Buyer’s Credit of some other banks. The fraudulent acts were found out when subsequent to superannuation of the said branch official, these companies again approached our branch for availing LOUs. On being asked to provide 110% margin because of no sanction of any FB/NFB limit, the companies informed the branch that they have been undertaking such transactions for last so many years.
The emergent theme from this notice signed off by the GM of the international division of PNB is that many more banks are involved and one can expect a much inflated figure attached to this scam. Axis Bank quick to the cut, wrote to National Stock Exchange and Bombay Stock Exchange (BSE) about its transactions against Letters of Undertaking issued by other banks, including PNB.
“In the normal course of trade business, the bank, through its overseas branches, undertaken transactions against letters of undertakings (LoUs) issued by other banks. These amounts are then credited to the LoU issuing bank’s Nostro accounts. Axis Bank has in the past undertaken such transactions with PNB against their authenticated SWIFT LoUs. Axis Bank is also an active participant in the secondary market for such transactions, and the bank had sold down all of the referred transactions,” said Axis Bank in the letter.
PNB told the stock exchange during regulatory filing yesterday that deputy manager (retired) Gokulnath Setty and single window operator Manoj Kharat had issued eight letters of understanding (LOU) worth over Rs 280 crore to Nirav’s company just three months before the former’s retirement in 2017. Shetty retired in May. The LOUs were issued in February. The due date mentioned January 2018.
via PNB fraud case: System circumvented for 6 years