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Last Updated : Feb 21, 2018 06:07 PM IST | Source: Moneycontrol.com

Finance Ministry cracks whip, asks Banking Secretary and PNB to explain Rs 11,000 crore fraud

FinMin has asked PNB for a detailed report on what transpired between 2011 (when the fraudulent transactions were first made) and now, sources said.

Shreya Nandi @shreyanandi15

Fighting the proverbial fire in the aftermath of the Rs 11,000 crore fraud, the Finance Ministry has asked the country's second largest public sector lender Punjab National Bank to explain why these transactions did not come to light earlier.

FinMin has asked PNB for a detailed report on what transpired between 2011 (when the fraudulent transactions were first made) and now, sources said.

On Wednesday, PNB had informed the domestic bourses that it had detected fraudulent transactions worth Rs 11,700 cr. Prior to this announcement, the bank had already lodged a complaint with CBI against celebrity jeweller Nirav Modi for alleged embezzlement of Rs 280.70 crore.

The Reserve Bank of India (RBI) will also be conducting its own enquiry to find out whether the banking laws and norms were flouted in this particular case, they said.

Department of Financial Services Secretary Rajiv Kumar was also summoned by FM Arun Jaitley on Thursday to explain how did a fraud of such a magnitude take place in a public sector bank and fix the loopholes in the banking system.

Besides, in a parliamentary standing committee meeting, questions were raised whether the majority of the capital infusion amount worth Rs 5,473 cr allocated to PNB would be used to mend the financials of the lender.

For the uninitiated, a PNB official fraudulently issued ‘letters of undertaking’ (LoUs), allowing Nirav Modi's group companies to get short- term loans (buyers’ credit) from overseas bank branches to pay the sellers. Under the terms of the LoU, PNB was the guarantor of these loans.

Nirav Modi and Gitanjali Gems firms would ask the PNB official to issue LoUs and get the foreign branches of the Indian banks to make payments to the sellers. Interestingly, the transaction request was not routed through the core banking system, but instead through SWIFT, the global financial messaging service. As a result, the higher authorities at PNB were unaware of the fraud.

The fraud came to light when the corrupt PNB official retired. When the Nirav Modi and Gitanjali firms requested for fresh LoUs, they were denied, since the records did not mention any such arrangement. The firms said they had been availing of the facility for years. On scrutiny, the fraud was exposed.
First Published on Feb 15, 2018 08:47 pm
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