New Delhi: Two deputy general manager (DGM)-level officers of State Bank of India (SBI) posted in Frankfurt in Germany and Mauritius are being questioned on Thursday by the Central Bureau of Investigation (CBI) in connection with the $2 billion scam in Punjab National Bank (PNB) allegedly involving billionaire jewellers Nirav Modi and Mehul Choksi, officials said.
They said the agency is focusing on the execution of letters of undertaking (LoUs) fraudulently issued by PNB’s Brady House branch in favour of foreign branches of Indian banks. According to the Reserve Bank of India (RBI) guidelines, LoUs in gems and jewellery sector should have a validity of 90 days but this crucial factor was conveniently ignored by Punjab National Bank in issuing such guarantees to the companies of Modi and Choksi.
For outstanding buyer’s credit, the LoUs are established for about 360 days ab-initio, PNB has alleged. “This should have evoked suspicion in the minds of overseas branches of Indian banks extending buyers’ credit. These branches never raised any alarm on violation of RBI guidelines and continued to provide funding against fraudulent LoUs," it has alleged.
During the questioning of officials of Indian banks posted abroad, the CBI asked these crucial questions. The officials were asked why several discrepancies in the LoUs issued by PNB were not considered by the banks extending credit facilities to the companies of Modi and Choksi without raising alarms.
The $2 billion scam became public in January after the CBI registered an FIR in the matter, but by that time both the high-profile jewellers had left India with family, they said. It is alleged that Choksi and Modi got LoUs and foreign letters of credit (FLCs) of $2 billion issued in favour of foreign branches of Indian banks based on fraudulent claims.
The accused PNB officials did not enter the instructions for these LoUs in their internal software to avoid scrutiny. They were sent through an international messaging system for banking called SWIFT, which is used to pass instructions among banks globally to transfer funds. An LoU is a guarantee given by an issuing bank to Indian banks having branches abroad to grant short-term credit to the applicant.
In case of default, the bank issuing the LoU has to pay the liability to the credit-giving bank along with the accruing interest. The PNB officials allegedly sent these messages to Indian banks—Canara Bank, State Bank of India, Bank of India, Axis Bank, Allahabad Bank—located in Antwerp, Hong Kong, Bahrain, Mauritius, Frankfurt.