Nobody will be spared in PNB fraud case: Finance Ministry

The Finance Ministry on Thursday said that the assets in the Rs 11,400 crore fraud involving PNB, India's second largest bank, will be recovered and no one will be spared.

Financial Services secretary Rajiv Kumar said that the bank has sufficient funds and it will make provisioning for it. "Whole lot of assets will be recovered. Nobody will be spared," he said.

According to PNB MD and CEO Sunil Mehta, the bank hasn't sought any bailout from the government as it examines the repayment plan submitted by the billionaire jewellery designer Nirav Modi who is under investigation for one of the biggest bank frauds in the country. "The bank has asked Modi to submit a revised plan to repay loans," said Mehta. Earlier plan, submitted by Modi is 'vague'.

As the bank looks to recover the loans given to Modi through Letters of Undertakings involving four other banks, sources at New Delhi-headquartered lender said that it might have to take a hit of just Rs 5,000 to Rs 6,000 crore, 50% of its Rs 11,400 crore exposure.

The bank has said that it has initiated a recovery process. According to the lender, the transactions are contingent in nature and the liability will be decided after the probe.

"PNB will not accept the liability from a bank which has not followed the RBI norms and the international business norms such as verifying the eligibility criteria of importer and following the given time limit for the LoUs," PNB sources said.

Apart from the LoUs, the lender has got Rs 1,700 crore exposure to the companies involved in the case. Some other banks have also extended loans to Modi's companies.

During 2011-2017, several fraudulent Letters of Undertakings were issued by the PNB's Brady House branch at Mumbai to the companies belonging to Modi and his maternal uncle Mehul Choksy. These include Gitanjali Gems (Rs 2144 cr), Gili India (Rs 567 cr), Nakshatra (Rs 321 cr), Solar Export (Rs 2153 cr), Stellar Diamonds (2135 cr), Diamond R US (2211 cr), Chandri papers (Rs 9 cr). Modi is already being investigated by CBI for fraud worth Rs 280 crore involving the same bank, according to the FIR

When was the fraud Detected?

The fraud was detected seven years later on January 25 this year at the branch, one of the biggest branches in Mumbai. On January 29, PNB officials filed a complaint with the Central Bureau of Investigation (CBI). On January 30, the agency registered an FIR against Nirav Modi, his wife Ami Modi, brother Nishad Modi and maternal uncle Mehul Choksey for defrauding the bank. After this, the bank informed the markets regulator and all lenders. The FIR prompted raids at 19 premises across locations of Nirav Modi's businesses and Rs 5,100 crore has been seized.

Modus Operandi

The bank fraudulently issued LoUs to the firms without following due process. According to the PNB, the alleged fraud was carried out by two staffers by not entering the transactions in the bank's Core Banking Solution (CBS) system. The two junior level staffers moved money out of the bank using SWIFT, the global financial messaging service network used by the banks to quickly move money across borders, and bypassed the core system which processes daily banking transactions and posts updates. The SWIFT messages used to raise overseas credit were not available in the bank's FINACLE software system as these were issued without entering into the bank's CBS. Normally, the banks have to check large value transactions including SWIFT system transactions.

These employees in connivance with the officials from the companies belonging to Modi and Choksey got the LoUs issued by the bank without maintaining an equivalent amount in the local branch, a requisite for obtaining LoUs. These LoUs were used to get the credit from the overseas branches of the Indian Banks including Allahabad Bank, Axis Bank, Union Bank of India and State Bank of India.

IN THE DOCK

• PNB has suspended 10 officers and referred the matter to CBI for investigation
   
• The fraud was detected seven years after it started at Brady House