PNB, Hit By Massive Fraud, Warned Banks About How The Scam Worked

Yesterday, Punjab National Bank told the stock exchange that $ 1.8 billion or over Rs 11,000 crore had been illegally transferred abroad to select customers from a single branch in Mumbai.

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PNB, Hit By Massive Fraud, Warned Banks About How The Scam Worked

Because of the PNB documents, dozens of banks may have been exposed to fraud.

New Delhi: 

Highlights

  1. PNB said the fraud has been going on since 2011
  2. Fraud was revealed when Nirav Modi's companies sought loan last month
  3. PNB said money was illegally transferred abroad from its Mumbai branch
Before suspending 10 of its officials for giant fraud linked to celebrity jeweller Nirav Modi, Punjab National Bank (PNB) sent a caution notice to several banks explaining how it was swindled out of Rs 11,000 crore by its own officials.

The notice was sent to banks like State Bank, ICICI, Standard Chartered, Allahabad bank, Bank of Baroda, Bank of India, Dena Bank, IDBI Bank, lndian Overseas Bank, Oriental bank of Commerce, Syndicate Bank, UCO bank, Exim bank and Canara Bank.

On Wednesday, Punjab National Bank told the stock exchange that $ 1.8 billion or over Rs 11,000 crore had been illegally transferred abroad to select customers from a single branch in Mumbai. On the basis of illegal Letters of Undertaking issued by PNB for Nirav Modi and others, "other banks appear to have advanced money to these customers abroad".

"This cancer that's been going on since 2011, we have brought it out and we are resolving it," PNB's Chief Executive Sunil Mehta told reporters, adding that the bank would honour all its commitments.

The fraud was revealed when Nirav Modi's companies sought a fresh loan last month. The officials who had helped them earlier had retired and when the bank insisted on guarantees, the companies allegedly said they had used the facility before. When the bank started investigating, it discovered fraud Letters of Undertaking.

A Letter of Undertaking (LoU) is a bank guarantee issued for overseas import payments. PNB officials allegedly used their access to a closely protected system and verified guarantees illegally. As a result, several other banks gave foreign exchange credit to Nirav Modi and others.

The PNB officials also allegedly bypassed the CBS or Core Banking System, a network that ensures that bank customers can operate their account from any branch, but which also monitors transactions real-time.

Several LoUs were illegally issued and cleared by a corrupt PNB official.

PNB first notified the CBI of its discovery in late January, and on Monday it issued a "caution notice" to warn other lenders about the suspected fraud.

Because of the PNB documents, dozens of banks may have been exposed to fraud.

Axis Bank on Thursday wrote to National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) about its transactions against Letters of Undertaking issued by other banks, including PNB.

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"Axis Bank is also an active participant in the secondary market for such transactions, and the bank had sold down all of the referred transactions," said Axis Bank in the letter.

PNB told the stock exchange during regulatory filing yesterday that it had learnt about officials in one of its branches in Mumbai illegally issuing letters of undertaking on behalf of companies belonging to Nirav Modi, Solar Exports, Stellar Diamonds and Diamond R Us, to help them get credit from overseas branches of Indian banks.

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