What we still don't know about Punjab National Bank scam
Right from the word "go", it was clear that what has now come to be called as Nirav Modi scam or PNB fraud could not have been perpetuated without big sharks getting involved. It obviously went beyond the two arrested officials - Gokulnath Shetty, a retired deputy manager, and Manoj Hanument Kharat, who connived with officials of Modi's firms to issue the letters of undertakings (LoUs) without seeking any collaterals, and that too, for a time period of one year, against RBI's stipulations.
Shetty was posted in the foreign exchange department looking after import payments for seven years from 2011 till he retired. Bankers who have handled the forex department at big public banks say they just cannot digest the idea that a scam of such magnitude (over Rs 11,000 crore) could have been perpetuated without the connivance of some of the top brass in the bank. And not just PNB, other banks that deposited money in PNB's Nostro accounts to help it fund Modi's so-called imports, appear involved.
In the Nirav Modi case, these fraudulent PNB officials sent messages on the SWIFT system (Society for Worldwide Interbank Financial Telecommunication, a global provider for secure financial messaging services) to the overseas branches of a host of banks, including Axis Bank and Allahabad Bank, totally side-stepping PNB's core banking system which would have, in normal course, reflected these transactions. The overseas branches of Indian banks transfer the money to PNB's Nostro account (meant to park overseas money meant for PNB's customers), but even they overlook the mandatory requirements. No goods were imported. Instead, the money extended to Modi was used to retire former outstanding bills or renew the already existing loans, a process termed "evergreening".
This went on until the new official at the forex window asked for collaterals at 110 per cent of the value of goods to be imported. While Modi's firms refused to do so, citing prior examples, it prompted PNB to conduct a series of "investigations" to reveal a gargantuan scam.
We still do not know if PNB made the scam public through a statement on the Bombay Stock Exchange after thorough investigations or whether it was because the bank recognised that the issue had gone out of hand. A diamantaire they had been supporting for so long was looking increasingly like a swindler, who may not be in a position to settle the loans, even if his entire brand is sold overnight. On the verge of taking a huge hit, the best option would have been to announce to the world that a scam had taken place. But that was not to be and here is why.
Let us, for a moment consider that Modi had paid off those officials in the forex division to raise LoUs without asking for the mandatory collaterals. But why was that the SWIFT system, through which they send the messages, not integrated with the core banking system? That integration process does not come under these two officials, but is a large IT initiative that has to be taken across all the PNB branches in the country and elsewhere and driven by the top management itself - the executive directors and managing director, because it involves so many people, systems and procedures, and definitely, funds to carry out the integration.
Overlooking the fraudulent officer's stint at just one department in one position for seven years was again not that officer's fault but the HR department's, which would again be headed by someone as senior as an executive director or a director on board.
Now, comes the role of other banks which acted on the LoUs and gave those funds to PNB. Where are the documents that the various banks have acknowledged PNB's LoUs as the latter raised them? Moreover, after the tenure of the short-term credit, which can range from 30 to 90 days, there have to be reminders.
Were these issued? If they were, where were these hidden? Who concealed them? Just two officials cannot hide such documents that have been coming in for seven years.
What one hears is that all public sector banks are now in a huddle to look internally, identify the kind of LoUs they would have given, check repayments, look at multiple levels of audit, and see if they too have a scam rotting in the backyard. Meanwhile, the CBI has extended its investigations to the PNB's top brass, questioning its MD and CEO Sunil Mehta and an executive director to understand how the fraud was perpetuated.
(Courtesy of Mail Today)