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  1. Nirav Modi Case: As PNB firefights, others tie loose ends

Nirav Modi Case: As PNB firefights, others tie loose ends

Some PSBs asked their vigilance officers to submit an internal report, assessing systemic preparedness to avoid potential frauds. “The (PNB) fraud came as a bolt from the blue. We swung into action, scanned accounts of the accused and started fortifying our internal systems.

By: | New Delhi | Updated: February 19, 2018 1:44 PM
nirav modi fraud case, PNB fraud case, PNBgitanjali gems, mehul choksi For most senior bankers, February 12 was just like any other day at office until they got a “cautionary message” from the Punjab National Bank (PNB), revealing the single-biggest fraud in the country’s banking history. (IE)

For most senior bankers, February 12 was just like any other day at office until they got a “cautionary message” from the Punjab National Bank (PNB), revealing the single-biggest fraud in the country’s banking history. Without waiting for any specific directive from either the government or the central bank to act, hectic parleys were arranged at headquarters of some public-sector banks and the first thing the banks did was to scan their individual exposure to the key accused in the $1.77-billion scandal — celebrity jeweller Nirav Modi and his uncle and chief of Gitanjali Gems, Mehul Choksi. Then started a more stringent scrutiny of their SWIFT interbank messaging system — which was manipulated in the PNB fraud — to detect any sign of wrong-doing, senior bankers with three PSBs confirmed to FE. PSBs — from State Bank of India to Bank of Baroda — are learnt to have further strengthened their systems since the PNB fraud came to light.Some banks sought to set up a “structured, centralised tracking system” to monitor SWIFT messages and created multiple layers of checking, as the SWIFT mechanism isn’t linked to their core banking system.Some sent advisory to their HR departments to check if any employee is retained in a sensitive post or branch, without strong reasons or formal approval, at any place for longer-than-the-stipulated period. (The former PNB employee who bypassed laid-down procedures to cause the fraud was retained in the same branch for around seven years when he was supposed to have been transferred in three years at most).

Some PSBs asked their vigilance officers to submit an internal report, assessing systemic preparedness to avoid potential frauds.
“The (PNB) fraud came as a bolt from the blue. We swung into action, scanned accounts of the accused and started fortifying our internal systems. Since then, we have made several changes to the way we were monitoring the SWIFT messages,” said an executive director of a mid-sized PSB. He called the heightened scrutiny an usual practice after any fraud is reported but conceded, given the sheer size of the latest scandal, the action had to be unusually swift and alertness unprecedented.Another senior banker said: “Maintaining tough scrutiny of thousands of SWIFT messages through a centralised system is a huge burden on banks, but there is no way out.”

The scanning then widened to their credit exposure to some of the large players in the gems and jewellery sector. Even the account of a Karnataka-headquartered large gold exporter with operations in a special economic zone was also scanned “not for any fraud but as a precautionary measure” to gauge risk potential, said one of the bankers. Apart from Modi and Choksi, who were reported to have a total exposure of Rs 17,326 crore to the banking system, precautionary enquiries were sent to some other big players in the gems and jeweelery sector on their repayment schedules. “If you learn from your mistakes, you are wise. If you learn from others’ mistakes, you are wiser. That’s what we are doing,” said a senior executive with a PSB with substantial operations in northern India, which is not hit by the current fraud at PNB. In a letter to 30-odd PSBs, PNB said on February 12 “one junior level branch official unauthorisedly and fraudulently issued letters of undertakings on behalf of some companies belonging to Narav Modi group — Solar Exports, Stellar Diamonds and Diamond R US — for availing buyers’ credit from overseas branches of Indian banks. The LoUs were issued using the SWIFT worldwide interbank system, without making corresponding entries in PNB’s core banking system, thus escaping the notice of auditors and senior management, the bank has said. Similar modus operandi was used by the same branch official in extending such bank guarantees to Gitanjali Gems, promoted by Choksi.
Uco Bank has declared an exposure of almost $412 million to the fake LoUs offered by the PNB staffer, while Allahabad Bank accounts for almost $367 million. Union Bank and SBI have exposures of around $300 million and $212 million, respectively.

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