As a major after-effect of the biggest banking scam in India in the over Rs 13,000 crore fraud allegedly committed by by billionaire diamond merchant Nirav Modi in the Punjab National Bank, other banks have become extremely hesitant in issuing credit for trade finance activities.
According to a PTI report, as an indirect repercussion, top bankers say that the lending premium has climbed by 10-50 bps on the Indian paper. Further, unidentified bankers told the news agency that the banks are now cautious in issuing Letters of Undertaking (LoUs) and this has affected the ability of traders to raise capital from abroad via this route. However, business is not seen to be coming to a complete halt, as a complete freeze seems unlikely.
In the major fraud, the retired PNB deputy manager Gokulnath Shetty who had served at the Brady House branch of the Punjab National Bank in Mumbai for eight years reportedly issued 293 Letters of Undertaking to companies of prime accused Nirav Modi and his family during his service, causing an alleged loss of Rs 11,400 crore to the Punjab National Bank. Further, the bank employees had failed to make entries into the bank’s systems, due to which the fraud went undetected for a period of more than 7 years.
According to a report in the Indian Express, the irregularities in Punjab National Bank could have been detected had auditors matched SWIFT messages with CBS data, even if the bank employees failed to make entries of the unauthorised LoUs in the Core Banking System, the newspaper had reported citing sources.
Meanwhile, following India’s biggest banking scam in the state-run lender Punjab National Bank, Corporate Affairs Minister Arun Jaitley has proposed to set up a new accounting watchdog, which received the Union Cabinet’s approval last week. Notably, NFRA will replace the existing National Advisory Committee on Accounting Standards (NACAS), which is an extension of another SRO ( Self-Regulatory Organisation) the ICAI.