The beleaguered Punjab National Bank that is in public news for multi-crore scam perpetuated by its employees and jeweler Nirav Modi has sent a note of caution to other member banks in the nation detailing the modus operandi of the scam so that they may take precautions to avoid such activities in their own system. The bank has suspended 10 of its employees and sent out notices to all the top banks of India like SBI, ICICI, Allahabad Bank, Canara Bank, OBC, Syndicate Bank and others about how officials from a single branch were able to carry out a fraud amounting to over Rs. 11,000 crores.
The bank’s chief Sunil Mehta told reporters that the men were like cancer to its system but as they were removed the bank would resume its operations in a clean manner and honor its commitments to honest customers. The bank officials had in connivance with Nirav Modi and his family had created fake Letters of Understanding to draw money from international branches of other banks. These letters are a form of bank guarantee issued for payment of imports to overseas clients by most industrialists that have overseas clients and customers.
Based on these letters of credit, several banks gave foreign exchange to Nirav Modi and his family. PNB’s officials had used their access to a highly protective system to carry out the fraud and also bypassed the Core Banking System to keep the transactions off the record. As the LoU’s were illegally created and cleared by a senior employee of PNB without entering into the bank’s regulatory system that monitors all international transactions, it was impossible to detect. Axis Bank said that it had granted payment against the LoU’s issued by several banks including PNB. It is likely that several other bank branches where the documents were used are likely to be exposed soon.
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