PNB mega fraud: All you need to know in brief On Valentine's Day, Punjab National Bank (PNB) disclosed a Rs 11,000 crore fraud allegedly by one of the country's richest men, diamantaire Nirav Modi. PNB's shares plunged on the news, dragging down other lenders when it said the scam may extend to multiple banks. With several questions still unanswered, here's what we know about the case: Who is named in the complaint? In its complaint, PNB has alleged that the fraud was led by Modi, a jeweller who's No. 85 on Forbes's 2017 list of India's richest people. It is alleged that Modi was helped by a former PNB employee, Gokulnath Shetty, who was a deputy general manager in the foreign-exchange department in one of its branches in Mumbai. What is this fraud about? The Modis and their relative Mehul Choksi and companies linked with them colluded with Shetty to pull off the heist. The bank claims they used fake PNB guarantees worth Rs 11,000 crore to obtain loans from overseas branches of Indian banks. How did it allegedly start? The fraud allegedly dates back to 2011. Between then and January 2017, Shetty issued several fake PNB letters of undertaking— without any collateral—for Modi. The bank claims they then bypassed the lender's internal messaging system in order to avoid detection, and placed instructions via the Swift global payment system asking overseas branches of Indian banks to fork out the cash as loans, according to a document seen by Bloomberg. How did it come to light? It came to light last month, when representatives of Modi's companies approached PNB for a fresh loan. By then, Shetty had retired and his successor declined to honour Modi's request."At this, the firms contested that they have been availing this facility in the past also but the branch records did not reveal details of any such facility," PNB said. This was when the fake letters of undertaking were discovered. Who bears the brunt? PNB is in talks with other banks and liabilities will be decided after the probe, PNB CEO Sunil Mehta said last week. He added that PNB will follow the regulator's instructions on repayment. A senior government official said PNB will repay other banks their dues by 31 March and it would be funded from internal resources. The RBI hasn't responded to emails seeking comment and hasn't publicly commented on the case. PNB has alleged that the money was used either to retire import bills or replenish maturing lines of credit with some other banks. In its complaint, PNB names the Hong Kong branches of Axis Bankand Allahabad Bank as the overseas counterparties. Allahabad Bank's is seen at about Rs 4,000 crore while that of Union Bank is projected at around Rs 1,000-2,000 crore. The corresponding figure for Axis Bank reads about Rs 2,000-3,000 crore. What next? The Indian government has asked all banks to send reports involving this case or other such incidents immediately. PNB's CEO said Modi has reached out to PNB to present a repayment plan but the bank has sought more details. Nirav Modi had left India even before the CBI complaint was filed, according to media reports that didn't cite any people. The external affairs ministry has suspended Modi and his Choksi's passports for four weeks. Modi, his wife Ami, brother Nishal and uncle and business partner Choksi all left the country in the first week of January. Modi was last seen in Switzerland at the World Economic Forum's annual meet in Davos (January 23-26). Ami is said to be an American citizen, while Nishal is a Belgian national. On its part, PNB has suspended eight more officials, including one at general manager level, for their suspected involvement in the multi-crore scam. Ten bank employees had been suspended immediately after the scam broke.
Source :The Economic Ties
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