Forex banks unearthed PNB scam not any whistleblower sources tell India Today

Though the state-run Punjab National Bank (PNB) claims it detected the multi-crore scam allegedly involving fake Letters of Undertaking (LoUs) the details emerging tell a different story. In the bank's first complaint letter that its deputy general manager Avneesh Nepalia wrote

Though the state-run Punjab National Bank (PNB) claims it detected the multi-crore scam allegedly involving fake Letters of Undertaking (LoUs) the details emerging tell a different story.

In the bank's first complaint letter that its deputy general manager Avneesh Nepalia wrote to the joint director of CBI on January 29 it was revealed that on January 16 when the bank asked for 100 per cent cash margin from diamond trader Nirav Modi's associates to avail the LoU facility from PNB's Brady House branch in Mumbai, the bank was told that the company had been availing this facility for years.

This raised suspicion after which the scam was unearthed, the letter said.

However, sources told India Today that the attention to the scam was drawn by forex banks.

The sources said that in the first week of January, PNB's Brady House branch received claims from Allahabad and Axis Banks' forex branches. LoUs were issued in favour of Allahabad Bank and Axis Bank in Hong Kong.

When PNB officials searched their data they neither found any guarantees issued in the core banking system (CBS), nor any import bill against which this alleged guarantee was given.

Further investigations revealed that the LoUs, which were missing in the bank's own CBS, were present in SWIFT instructions to the overseas branches of Indian banks for raising buyers' credit and funding the NOSTRO accounts. This prompted panic as PNB officials noticed that some insider had been issuing LoUs without import bill and mentioning this in the CBS.

SWIFT refers to Society for Worldwide Inter-Bank Financial Telecommunication. The SWIFT codes, like the IFSC code in the inter-bank domestic transfers, are used for inter-bank international money transfers and messaging. Banks hold Nostro accounts with each other for cross-border foreign currency transactions.

So, on January 16, when Nirav Modi's associates were refused LoUs, sources say the men were at one point ready to pay 100 per cent cash margin to avail the facility. But by that time it was too late.

PNB realised that it had been taken for a ride and further investigation revealed that the bank's own deputy manager, Gokulnath Shetty, who was working in the foreign exchange department and looking after the import section, was issuing the LoUs.

Shetty is the first person to have been arrested by the CBI in the scam.

Normally, until Shetty was working in PNB till May 2017, the rollover chain was intact. Past due payments of buyers' credit were paid off by using other buyers' credit issued by PNB. But after his retirement, the chain was broken and Shetty's senior and in-charge of the import section, Abhay Joshi, stopped allowing the facility to Nirav Modi and his company.

The bank has now suspended Joshi along with other officials from the Brady House branch who were working in the forex department for not keeping a check on Shetty's illegal activities.

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The PNB management has also suspended all those officials who have been in charge of the branch since 2011. These include general manager Rajesh Jindal who was branch in-charge at the time.

PNB also suspended another general manager, Anil Bansal, who was circle head of the bank in 2015 and cancelled Shetty's transfer order because of which he remained in the Brady House branch for seven years and issued more than 100 LoUs to Nirav Modi and his companies.

According to the FIR filed by CBI, all these bank officials are now suspects and they are being investigated to establish whether whatever they did was out of sheer negligence or if they colluded with Shetty.

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