Nirav Modi scam: PNB asks banks for data, no condition on LoU payout yet
Since the CBI is investigating the PNB fraud, no final call on LoU payouts can be taken as of now, said bankers aware of the matter
New Delhi: The Punjab National Bank (PNB) has asked for certain information from peer banks but no condition has been set for payouts related to letters of undertaking (LoUs) in the Rs 12,968 crore fraud allegedly committed by Nirav Modi and his firms, said people aware of the development.
Bankers aware of the development said that since the Central Bureau of Investigation (CBI) is probing the PNB fraud, no final call on LoU payouts can be taken as of now.
“PNB has been calling for certain information from other banks to ascertain if there were any deficiency or laxity on the part of those other banks, if they also had some system lacunae or might have compromised on their system, things like that,” a bank official said on the condition of anonymity. “As the investigations are going on, there is no final call on LOUs payouts.”
As the investigation process normally stretches long, the bankers fear they will be compelled to declare the portion of their exposure in the LoU fraud as non-performing assets (NPAs).
“Those accounts will have to be declared NPA if our money is not back with us within 90 days,” said another banker. “If the money doesn’t come back in days, technically I will have to make it as NPA in my books. This quarter (ending 31 March), it looks unlikely to be any pressure. Even if it comes, it will be in the coming quarters,” the official said.
The bankers said both the finance ministry and the Reserve Bank of India (RBI) have asked all public sector banks to strengthen their systems. However, there are not any specific directions, they said.
To plug the loopholes, PNB has started the process of urgently integrating the global transaction system—SWIFT—with its core banking solution (CBS) system and initiated other remedial measures with regard to overall audit functions of the bank. It is reviewing performance of external auditors.
Meanwhile, a new software Financle 10 has already been installed and is in the testing phase, PNB said. “It is a superior system and would enable the bank at mid office and head office to view transactions of all branches through one administration,” PNB said in a communication.
PNB has also implemented a three-level authentication system with regard to SWIFT authentication and a terminal at head office/zonal office would be installed to monitor transactions immediately.
The $2 billion PNB fraud was allegedly perpetuated by jewellers Nirav Modi and Mehul Choksi in connivance with a few bank officials who managed to bypass the banking system to issue LoUs to the accused’s firms.
Over two dozen banks, including State Bank of India (SBI), Allahabad Bank, Bank of Baroda, Bank of India, Union Bank of India, ICICI Bank have taken a hit in the PNB fraud by making import credit payments to Nirav Modi and firms on the basis of the fake LoUs.
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