The Indian banking sector that is currently recovering from the acute NPA crisis was given a blow when it came to knowing about the biggest fraud of the year. The country’s second-largest lender, Punjab National Bank (PNB), discovered that 11,400 crores were missing from its Mumbai branch. It was then brought to public and the culprit was found to be the popular diamond merchant, Mr. Nirav Modi who is said to have looted the bank. This came as a shock to the whole Indian banking system and along with the alert to all the other banks, it made us realized the gap, which always allows some dupers to play with the bank system.
The PNB-Nirav Modi Scam tip to toe:
- It is claimed that the diamond merchant was duping the PNB bank since 2011. That is quite a period.
- The fraud was made with LOUs, LOU or Letter of Undertaking is a document provided by the bank to the client based on which the client can perform his overseas transactions.
- In transactions like these, 3 parties are involved. The bank, the consent bank, the checker and the verifier.
- The process is three-layered protected and works as: Lois are transferred from one bank on behalf of the client to the other international banks via Society of Worldwide Interbank Financial Telecommunication (SWIFT).
- In case of this fraud, the SWIFT entries were not made by the officer of the bank. All the transactions have to be updated in the real-time in the Core Banking Solutions and unfortunately, the liable official did not route these transactions through CBS and hence there were no traces of SWIFT transactions.
- Nirav Modi used all these systems adeptly for his own benefit in agreement with some of the corrupt officials.
The whole fraud became known when the corrupt officer retired and the new joint did not give permission to such fraudulent LoUs. The traces of this fraud were discovered on 25th January and since then the whole nation is under a complete shock.
The fraud came to a revelation to all the other banks to check and update their internal systems. RBI has already directed PNB to settle all the LoUs with different banks that have given a loan to Nirav Modi.
Current progress on the swindle
For now, the passports of Nirav Modi and his uncle cum partner Mehul Chowksi who is equally liable to this fraud have been seized and suspended for four weeks. The Enforcement director has issued a summon on Friday for the appearance of the multi-billionaire diamond merchant Nirav Modi and his partner Mehul Chowksi. These two are not in the country and hence the summon has been given to the directors of their firms.
The ED has carried out raids in the commercial and residential properties of Nirav Modi out of which they have seized jewelry, diamonds and gold worth Rs.5100.
On the other hand, at the back side, some of the arrested officials have agreed to take the commission based bribe for allowing such fraudulent LoUs. The Fraudulent LoUs that went overseas was worth $1.77 billion.
The three accused officers are on remand until 3rd march by CBI.