The Punjab National Bank fraudulent case is making the news, offices and home of Nirav Modi have been sealed. As per the preliminary investigation by the Punjab National Bank it is suspected that the fraud was carried out by the perpetrators in collusion with the staff at one of the branches in Mumbai.
It was found through SWIFT trail that one junior level branch official unauthorizedly and fraudulently issued Letters of Undertakings (LoUs) on behalf of some companies belonging to Nirav Modi Group viz. Solar Exports, Steller Diamonds and Diamond R Us for availing buyers’ Credit from overseas branches of Indian Banks. The companies were maintaining only current accounts with the branch and were not enjoying any fund/non- fund based limits. None of the transactions were routed through the CBS system, thus avoiding early detection of fraudulent activity.
Similar process was used by the bank branch officials in companies belonging to M/s Gitnajali Gems Ltd which is promoted by Mehul Choksi viz Gitanjali Gems, Gilli India and Nakshatra, while issuing LOUs/FLCs. These companies enjoy credit (FB & NFB) facilities.
In case of FLCS, it has been found out that at the time of issuing FLC for a smaller amount by SWIFT, the transaction was routed through the CBS system but subsequently, amendments were made in these FLCS by substantially enhancing the amount of FLC and transmitted through SWIFT without routing these enhancements through CBS the said official would subsequently convey via SWIFT the acceptance of Bills for the full amount of FLC to the overseas negotiating bank. However, the detailed investigation is still in progress.
The LOUs were opened in favour of overseas branches of Indian Banks for importing pearls for over a year, for which the total time allowed is 90 days from the date of shipment as per the guidelines of RBI. However, the stipulated time frame was overlooked by overseas branches of Indian Banks. As per the investigation there is clear criminal connivance of group companies of Nirav Modi and Gitanjali.
Punjab National Bank has said that none of the overseas branches of the Indian based Banks have shared any documents or information with them on this matter. As per the investigations of the PNB, the fraudulent acts were found out when subsequent to superannuation of the branch official who helped in the fraud. The companies again approached the bank branch for availing LOUs. The bank asked them to provide 110% margin because of no sanction on FB/NFB limit, the companies informed that they have been making such transactions for over a period of time.