PNB Fraud: Employee bypasses Banking System to issue LoU

PNB Fraud:  PNB cautions other banks about modus operandi of fraud 

The letter issued by PNB to other banks cautioning about the fraud said it was found through the SWIFT trail that one junior level official fraudulently, and without authorization, issued Letters of Undertaking (LoUs) on behalf of some companies belonging to Nirav Modi Group.

In simpler language; reportedly PNB employee misused the SWIFT network without entering the data into PNB’s Finacle Software System which is bank’s central banking software, while Letters of Undertakings were issued without updating the CBS.

The companies were maintaining only current accounts with the branch and none of the transactions were routed though the Centralized Banking System, it said.

Similar modus operandi was used by the same official for companies belonging to Gitanjali Gems promoted by Mehul Choksi.

PNB said that RBI norms were overlooked by overseas branches of other Indian banks and alleged connivance of group companies of Nirav Modi and Gitanjali Gems with its own official and also apparently of others working in foreign branches of Indian banks.
The fraudulent act was found out when subsequent to superannuation of the concerned official, the same companies again approached the branch for availing Letter of Undertakings (LoUs).

Hit by a Rs 11,400 crore fraud, state-owned Punjab National Bank has suspended 10 of its officials in connection with the case. Also it has cautioned other banks about the modus operandi of the scam.

While major jewellers Gitanjali, Ginni and Nakshatra have also come under the scanner of various investigating agencies following PNB’s declaration of the fraud, committed allegedly by Nirav Modi.

Managing Director of Punjab National Bank (PNB) Sunil Mehta on Thursday said that the bank has the capability and capacity to deal with the situation arised due to jewellery designer Nirav Modi fraud case.

"In response to our registered FIR, raids are being conducted on involved groups' establishments; documents and records are being seized. Steps are being taken to protect the financial interest of banks," Sunil Mehta said while addressing the media.

"This is a standalone incident. It has taken place only in one of our branches," he added.

While a letter from PNB sent to various banks including those from the private and public sector as also to foreign lenders said, "It has been reported through a preliminary investigation that the suspected fraud has been carried out by the perpetrators in collusion with the staff of one of the our branches in Mumbai,"

There is strict instruction from the finance ministry to all banks that no big fish should go scot free and no honest borrower is harassed, the official said.

Banks are now looking at their systems and processes so that such frauds are not repeated, the official said.

All banks have been asked to present a status report as soon as possible, he added.