PNB CEO exonerates external auditors in Nirav Modi scam, says they had no access to fraud data

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Published: April 12, 2018 12:51 PM

Two months after the Rs 13,000 crore fraud at Punjab National Bank rocked the nation, its chief executive officer Sunil Mehta exonerated external auditors.

Sunil Mehta, chief executive officer of India's Punjab National Bank (PNB)Sunil Mehta exonerated external auditors in Rs 13,000 crore Nirav Modi-PNB fraud

Two months after the Rs 13,000 crore fraud at Punjab National Bank rocked the nation, its chief executive officer Sunil Mehta exonerated external auditors saying they cannot be blamed as they inspect data only in core banking software, where the entries for fake LoUs were never made.

In an interview with Reuters, Sunil Mehta said that formers bank officials who were allegedly involved hid the fraud by issuing the Letters of Understanding via the SWIFT system, while not making corresponding entries in the core banking solution (CBS).

“I don’t blame them. They come only for a short period of time and they go and basically see data only on the CBS,” Sunil Mehta told Reuters. SWIFT is basically a financial messaging service which banks around the globe use for communicating details international money and security transfers.

At the heart of the PNB fraud, being touted as the biggest banking scam in the country was the SWIFT system which was used to facilitate diamond czar Nirav Modi and his uncle Mehul Choksi to raise credit from overseas branches of other Indian banks through fake LoUs. Sunil Mehta said that the bank is in the process of integrating the CBS and the SWIFT to evade similar incidents in future.

Since the incident came to light in the first fortnight of the February, it rattled the nation over the fact that the fraudulent transactions went unnoticed for nearly seven years, with some experts raising questions on the failure of external auditors, the role of government and the Reserve Bank of India.

A multi-agency probe into the matter is underway, and so far 20 people allegedly involved in the fraud have been arrested. The bank has also 21 officials so far and is conducting an internal investigation, in which Sunil Mehta, said that more heads could roll.

The incident also gave a glimpse of a divide between the government and the central bank. While the government questioned the role of bankers, regulators and the central bank in failing to identify the fraud, governor Urjit Patel said that the RBI does not have enough regulating power over state-owned banks as it has over private banks.

Following the incident, the RBI did swing into action and ordered banks to integrate the CBS with SWIFT by the end of April. It also ended the credit facilities like LoUs and Letters of Credit (LCs) to avoid future misuse. The two accused in the case, once India’s top jewellers — Nirav Modi and Mehul Choksi — left the country before the fraud was uncovered and have so far maintained innocence, while Indian authorities are trying for their extradition.

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