PNB Scam: Some Tech Lessons For Indian Banks

Website of Gitanjali Group

Website of Gitanjali Group

Officers from the elite Central Bureau of Investigation (CBI) yesterday swarmed all over the Brady House branch of state-run Punjab National Bank (PNB) in Mumbai, India's financial capital, which is at the heart of a US$1.8 billion (S$2.4 billion) fraud case involving a prominent billionaire jeweller.

Indian billionaire jeweller Nirav Modi has denied allegations that he was involved in a $1.8 billion loan fraud at Punjab National Bank (PNB), his lawyer told Reuters on Tuesday.

On Saturday, CBI had arrested Shetty, a former deputy manager at PNB, Kharat, a single-window operator at the bank, and Bhat, the authorized signatory of the Nirav Modi group.

The agency started questioning of five more officials, including general manager-level officers, taking the total number of those being quizzed to 11.

Considering the fact that companies of Nirav Modi and his uncle Mehul Choksi got fraudulent Letters of Undertakings (LoUs) and Letter of Credits (LCs) issued from the PNB, the CBI on Sunday has asked all banks to report any irregularities in LoUs.

The accusations against the two relatively junior PNB officials were detailed in the lender's disclosure, and also contained in a preliminary police report.

"The RBI is a banking regulator and it is their responsibility to highlight any systemic risks and be vigilant about them", said the second ministry official.

Jaitley - without naming the PNB fraud that has rocked the banking system - also said the scam posed an important question - "lack of ethics that a section of Indian business follows".

One of Mr Modi's employees was arrested over the weekend and on Monday CBI agents carried out another search of the bank branch to gather evidence, the CBI source said.

The first 150 LoUs that was issued was of worth Rs 6,500 crore in 63 days between March 1st to May 2, previous year in 2017.

According to media reports, he is now in NY.

Including direct loans given to companies of Modi and Choksi, Indian banks may be liable for more than $3 billion, according to an internal tax department note seen by Reuters. Gitanjali Gems is one of the companies charged by investigating agencies for colluding with Nirav Modi in carrying out the fraud.

Jaitley said the supervisors needed to introspect what kind of new mechanism should be put in place to find those cheating banks.

The ED is also moving to attach at least two dozen immovable properties of Modi, Choksi and their concerns under the Prevention of Money Laundering Act (PMLA).

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