NEW DELHI: The Union government’s recent attempts to clean up the banking system received a huge setback on Wednesday as Punjab National Bank reported fraudulent transactions to the tune of Rs 11,363 crore, which is double the Rs 5,473 crore the Centre was planning to infuse in the bank as recapitalisation and eight times the behemoth’s net income of Rs 1,320 crore.
“The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance,” the PNB said in a BSE filing.
According to sources, the branch manager at PNB’s Brady House branch in Mumbai issued fraudulent Letters of Undertaking (LoUs), which were used as collateral to raise money from other banks. “The quantum of such transactions is $1,771.69 mn approx,” PNB said, adding that the matter has been referred to the CBI.
While the bank did not name anyone in its BSE filing, it sent out a caution notice to 30 other public sector banks on February 12 naming billionaire jewellery designer Nirav Modi and Gitanjali Gems for the fraud.
Why were these transactions were not detected till now? According to PNB’s advisory to other PSBs, none of the big transactions was routed through the core banking system (CBS) ostensibly to avoid early detection of fraudulent activity. However, smaller amounts were routed through CBS to avoid suspicion.
“At the time of issuing FLC (foreign letters of credit) for a smaller amount by SWIFT, the transaction was routed through the CBS system,” the caution note said, adding that the amounts in these letters were subsequently jacked up and sent through SWIFT instead of CBS.
PNB’s letter indirectly accused the overseas branches of those 30 banks of not flagging suspicious activity. It also mentioned collusion from within the bank by a junior officer who has since retired.
The bank sent its first complaint to the CBI on January 29 against Nirav Modi, Nishal Modi, Ami Modi and Mehul Choksi, all partners of Mumbai-based firms Diamond R US, Solar Exports and Stellar Diamonds, on a Rs 280-crore fraud. The complaint had also named Gokulnath Shetty, a retired PNB deputy manager and another bank functionary Manoj Hanumant Kharat.
Based on the complaint, the CBI registered a case on January 31 accusing all the persons of criminal conspiracy and cheating.
At that time, the PNB had said it was digging into records to see if the hit was much deeper. That figure has now shot up to Rs 11,363 crore.
The finance ministry has asked all other banks to send reports involving this case or other such incidents by the end of this week.
Who is Nirav Modi
Born into a family of diamond merchants, he is a well-known jewellery designer and the founder of $2.3 billion Firestar Diamond
First made it to the Forbes’ list of billionaires in 2013; ranked 86 out of 100 Indian billionaires
Shot to fame after designing a jewellery set priced at Rs 105 crore, one of the costliest ornaments made in India
He’s the nephew of Gitanjali Gems owner Mehul Choksi
Choksi was booked along with Nirav in first PNB fraud case