PNB scam: 30 banks paid out funds based on LoUs issued by Punjab National Bank, says parliamentary panel; calls for wider probe

Some 30 banks are believed to have paid out funds based on letters of understandings (LoUs) issued by the Punjab National Bank (PNB) on behalf of billionaire diamantaire Nirav Modi, his uncle Mehul Choksi and their companies, a media report quoted a parliamentary report as saying.

According to The Economic Times, the Parliamentary Standing Committee on Finance, headed by Congress member M Veerappa Moily, in a report, said that "international branches of many Indian banks including State Bank of India, Union Bank of India, Allahabad Bank, Axis Bank and some foreign banks, lent money to a particular entity or many entities or companies based on these alleged fraudulent guarantees."

The committee is calling for a wider probe of the PNB scam. Modi, Choksi and their associates allegedly colluded with a few bankers to defraud PNB of Rs 12,646 crore, the country's biggest ever banking fraud.

The committee's report also said that every SWIFT message should trigger an alert at the Reserve Bank of India (RBI). The SWIFT or the Society for Worldwide Interbank Financial Telecommunication is a network used by financial institutions to communicate financial transactions.

Representational image. Reuters

Representational image. Reuters

Meanwhile, the RBI has initiated a special audit of state-owned lenders with a focus on trade financing activities, especially relating to the issuance of LoUs by them.

In addition, the RBI has asked all banks for details of the LoUs they had written, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees.

Finance ministry asked to submit report on PNB fraud 

"Extremely concerned" over the Rs 12,646 crore fraud at PNB, the committee on Friday had asked the finance ministry to institute a comprehensive enquiry encompassing systemic elements in the case and submit its report within a month.

The committee had said that it was "extremely concerned about the fraud detected in the PNB, which clearly reflected that a small group of individuals could manipulate such a gigantic bank and compromise it despite such well laid out norms, guidelines, checks and balances".

The Department of Financial Services of the Finance Ministry, it said, should "constitute a comprehensive enquiry into the matter, encompassing both human as well as systemic elements including the role of all concerned officials at each level".

The PNB fraud

Last month, PNB lodged an FIR with the Central Bureau of Investigation (CBI) stating that fraudulent LoUs worth Rs 280.7 crore were first issued on 16 January this year. At the time, PNB said it was digging into records to examine the magnitude of the fraud.

In the complaint, PNB named three diamond firms - Diamonds R Us, Solar Exports and Stellar Diamonds - saying they had approached it on 16 January with a request for buyers' credit for making payment to overseas suppliers. The bank sought 100 percent cash margins for issuing LoUs for raising buyers' credit, which was contested by the firms saying they had availed of the facility since 2010.

Modi, his wife Ami, brother Nishal and Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which operates jewellery stores in Hong Kong, Dubai, and New York.

With inputs from PTI

Published Date: Mar 12, 2018 12:32 PM | Updated Date: Mar 12, 2018 12:48 PM

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