Indian Economy News & Discussion - Nov 27 2017

[chetak]

^No recon between SWIFT and the internal systems? Basic reconciliation procedures should have flagged this easily.

this looks like a baboo(n) inspired, specifically tailor made "loophole" of the kind that is built into any and every initiative that has money flowing in it's veins.

MNREGA, "loan" waiver schemes, are notorious money bleeders, until aadhar came along and upset the politico + baboo(n)'s apple carts.

Any basic audit should have unearthed this modus operandi, unless the gang had real good "incentives" to keep silent.

Even a ordinary household, merely for balancing the checkbook, has such a reconciliation procedure and process, which may be very cursory and back of the envelope stuff but it's there.

It seems stupendously unbelievable that one piddly PSU wallah could hide a scam of this magnitude and longevity and plunge the entire industry into utter chaos, subverting multiple financial audits as well as multiple auditing companies and also the all important internal audits in which many a big boss would have had to sign off on.

what sort of a banana republic have we become?? Didn't something similar happen in the sathyam scam and scandal??

The entire phalanx of the regulatory structural edifice of financial watchdogs like the MoF, RBI, whatnot could not have missed this.

I simply do not believe it is possible without wholesale involvement of politicians as well as the IAS baboo(n)s in dilli.

BTW, great going, right under media darling and poster boy raghu ram rajan's nose.

I wonder what slick explanation he will come up with.

[Deans]

X posting from Bharat Ganrajya.

The larger problem is that the banking system is rotten and can take the economy down with it.

In an earlier post, I mentioned how PNB had extended a rather dubious loan to the promoter of the company I ran (when the promoter was
unable to repay the loan). To take another slightly unrelated example - the company imported about $ 3000 of spare parts for machines in 2011. The bills of entry were submitted to the bank through which forex was paid and acknowledgement obtained. Thereafter the B//E details go to the RBI.
If the Bill of Entry is not submitted in 6 months, the bank is supposed to red flag it.

In 2015, we got intimation from the bank that we hadn't submitted the Bills of entry. We provided their acknowledgement of 2011 in response.
A year later, spooked by the Bank of Baroda fraud. the bank claimed we had not submitted the bill of entry (in reality they lost it and forgot to
enter details in their system, as a bank insider told us), informed the RBI, who in turn informed the ED, without even asking for our version.
While I am no longer associated with the company and wasn't in 2011, at the time of import, I've been harassed and spent needless time trying to sort this matter out and more importantly, the RBI, Bank and ED have spent disproportionate time trying to trace a document for a $ 3000 import - where all acknowledge the money was paid to a reputed European supplier for parts the company physically has and are worth the amount paid. Ironically we implemented `Made in India'' for all our imports and were the only player in the world, in our category, to move beyond the 2-3 Western suppliers for machines and raw material and develop these in India at lower costs.

I'm fairly certain such frauds are not limited to Nirav Modi. They would be rampant across banks and the jewellery/Real estate industry - among others. Bank and RBI audits are a joke (neither RR not any of his nominee directors on PSU boards flagged a single big loan defaulter or scam). Deloitte is the auditor for PNB. I wonder if they will be held accountable.

[chetak]

PNB scam: ED officials sceptical of bank's whistle-blower claim, warn of more skeletons in closet

PNB scam: ED officials sceptical of bank's whistle-blower claim, warn of more skeletons in closet

Business Yatish Yadav Feb 15, 2018

New Delhi: The Central Bureau of Investigation (CBI) is probing 150 Letters of Undertaking (LoUs) — akin to a bank guarantee issued by state-owned Punjab National Bank — which allowed billionaire diamond designer Nirav Modi to flee the country after allegedly perpetrating a fraud of Rs 11,000 crore. According to CBI officials, investigators have conducted 20 raids at various premises occupied by Nirav and his associates and were able to recover 95 key documents linked to the PNB bank fraud.


“These 95 documents are basically import bill applications on the basis of which the LoUs are issued," a CBI official said. "The bank has filed a second and third complaint as well and has handed over some documents to us which are being examined. We have asked for some more documents related to reconciliation reports, copy of audits to figure out as to why the huge sums did not raise red flags in the system.”

The bank, in its complaint to the CBI, alleged that two employees — Gokulnath Shetty and Manoj Kharat — fraudulently issued the LoUs in violation of prescribed procedures.

The bank also claimed that entries were not made in the system to avoid the detection of alleged illicit transactions. PNB managing director Sunil Mehta said "this fraud started in 2011 and continued until 16 January, 2018, when firms M/S Diamonds R US, M/S/ Solar Exports and M/S Stellar Diamonds approached the bank’s mid corporate branch at Brady House, Mumbai, with a request to allow buyer's credit for paying overseas suppliers".

“Since there was no sanctioned limit in their name of the above firms, branch officials requested the firms to furnish at least 100 percent cash margin for issuing LoUs to raise the buyer’s credit. The firms contended that they'd been availing this facility in the past, but branch records did not reveal that any such details had been granted to the said firms,” the PNB complaint alleged.

Officials in the Ministry of Finance, however, remain dubious about the claims made by the bank, saying there is something incomplete about the transactions. A senior official at North Block, requesting anonymity, said, "I find the whole thing murky because other state-owned banks accepted the LoUs without verification and due diligence."

"No doubt there is an operational failure on the part of the bank, but each and every transaction is recorded and every evening there is reconciliation and day-to-day records are recorded. If the money went out, then who gave the money? Who is the authority? If it was forged, then why was no verification done after first transaction was carried out in 2011? The RBI does its own audit — apart from the internal audit — and if the money was paid, it has to reflect somewhere. If two employees can carry out such a scheme, then there is something seriously amiss about how this bank is operating," the official added.

Enforcement Directorate (ED) officials watching Mehta's press conference said they were baffled when the top boss of the public sector bank claimed that the bank was both whistle-blower and victim. The ED has sought documents related to Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments as such transactions are verified to ascertain Foreign Exchange Management Act (FEMA) provisions. The verification sometimes takes a week before the final clearance is granted

Secondly, ED investigators want to know whether these LoUs were even once — at any point of time over the past seven years — returned to the originating bank branch for verification, and if so, whether or not these transactions were flagged in the annual audit report of the bank’s foreign exchange department. Mehta, in his media briefing, asserted that the fraud was basically “an illness that started in 2011 and we need to do surgery”.

While ED officials stated that Mehta could not be blamed for the fraud, they nevertheless, punched holes in the 'victim' card that Mehta was playing, stating that the bank highlighted forgery and avoiding entries into the bank system as the plausible modus operandi of Shetty and Kharat.

“It appears that PNB, after getting a whiff of massive scam, filed the criminal complaint in a hurry," an ED official said. "Although they claimed that an internal investigation was carried out by the bank, it seems they were not able to do it properly. There seems to be something seriously wrong because Shetty and Kharat may have forged and issued LoUs, but verification must have returned to the higher authorities. What did they do? If no alarm bells rang in these past many years and huge sums were ripped off by lower level bank officers, then it is much more serious."

The ED issued a look out circular against Nirav Modi, his wife Ami Nirav Modi, his brother Nishal Modi and uncle Mehul Choksi. Nirav left the country on 1 January, 2018, and his wife, reportedly a US citizen, followed on 6 January. Sources said Gokulnath Shetty, former deputy manager of PNB, is absconding and his residential address — as per official records — has been rented out.

[Philip]

This is a scam that beggars belief! How many of us have tried getting even a small loan processed through a desi bank? A year or so ago I needed some moolah as a precaution,as some dues from the govt. were being delayed.Despite the knowledge that the money would definitely come,a year late as usual,the cqs. being regularly deposited with the bank,the humming and hawing and paperwork reqd. for just 2 lakhs consumed much of my precious time.Then silence for a few weeks.When I next visited the bank and inquired hat had happened,I was then after about half an hour of waiting told that it wasn't possible for whatever reason.This had by now taken over a month. I disgustingly told the bank that by now I wasn't interested in the loan at all.Fortunately for me,the delayed moolah arrived and all was hunky-dory.

The ease with which these scamsters have looted billions is unbelievable.It appears that all you need is a corrupt bank offiical and together with him start a feku co. preferably in exports,diamonds such a loveable commodity,the favourite of criminals worldwide,where low quality diamonds can be exported claiming value for top line sparklers! gents,we've been wasting our time with our professions.Crime DOES pay...in India! Even the purloining of a modest $100M could keep us in clover for the rest of our lives. And believe you me,it's not going to be the last one perpetrated.It only gives Indians new creative methods of looting and scooting.Funny though the scamsters are all named Modis, or Mehtas (remember the late "Big Bull" Harshad M?).No aspersions cast upon our PM though!

To give you a clue as to how serious the situ is,I got a call this morning at the impolite hour of 8am (!) from a joker of a bank,asking me when my next EMI was forthcoming,after I had just four days ago paid it! I was so enraged as it came just after reading the latest news of the PNB scam,that I tore into him and demanded why he wasn't following up on the key defaulters and scamsters like Mallya.Modi and Modi,instead of the unfortunate middle class and honest taxpayers,a paltry % of the nation's population who are being crushed and flattened by taxes and more taxes. If anyone thinks that our financial situ is healthy,the reality at ground level as perceived by the common man is anything but that. The armed forces will be lucky if there is enough moolah for part of their desperately rqd. needs. Only the smaller stuff like small arms,ammo,some spares,etc.are being pushed through by an energetic DM.The big tkt. items are still in the air.

So gents,the next time some banking low-life calls you up and reminds you about your home loan EMI,tear into him,chew him up with the choicest of phrases parliamentary,demand of him why he and his bank are sitting on their backsides not going after the scamsters magnus,who've looted and scooted with billions of the nations',your and my money actually.Scream at him and tell him to call one Jet Li in Delhi for the same and slam the phone down on him! Heads have to roll,from the rareified heights of the RBI down to the lowest life in banking circles who've helped perpetrate such scams.

[vinod]

The auditors should be made liable as well. May be a 5000cr fine on the firm. The actual auditors to be sent to jail.

Simply an example has to be made out of these scumbags!

[JTull]

India needs to have a threat of suspending all diplomatic engagement with any country where these guys end up. No country can ignore our economic clout. Let's leave them only Pakistan and China as possible harbourers. Then these individuals and the countries will find out the true cost of fraud.

[chetak]

This is a scam that beggars belief! How many of us have tried getting even a small loan processed through a desi bank? A year or so ago I needed some moolah as a precaution,as some dues from the govt. were being delayed.Despite the knowledge that the money would definitely come,a year late as usual,the cqs. being regularly deposited with the bank,the humming and hawing and paperwork reqd. for just 2 lakhs consumed much of my precious time.Then silence for a few weeks.When I next visited the bank and inquired hat had happened,I was then after about half an hour of waiting told that it wasn't possible for whatever reason.This had by now taken over a month. I disgustingly told the bank that by now I wasn't interested in the loan at all.Fortunately for me,the delayed moolah arrived and all was hunky-dory.

The ease with which these scamsters have looted billions is unbelievable.It appears that all you need is a corrupt bank offiical and together with him start a feku co. preferably in exports,diamonds such a loveable commodity,the favourite of criminals worldwide,where low quality diamonds can be exported claiming value for top line sparklers! gents,we've been wasting our time with our professions.Crime DOES pay...in India! Even the purloining of a modest $100M could keep us in clover for the rest of our lives. And believe you me,it's not going to be the last one perpetrated.It only gives Indians new creative methods of looting and scooting.Funny though the scamsters are all named Modis, or Mehtas (remember the late "Big Bull" Harshad M?).No aspersions cast upon our PM though!

To give you a clue as to how serious the situ is,I got a call this morning at the impolite hour of 8am (!) from a joker of a bank,asking me when my next EMI was forthcoming,after I had just four days ago paid it! I was so enraged as it came just after reading the latest news of the PNB scam,that I tore into him and demanded why he wasn't following up on the key defaulters and scamsters like Mallya.Modi and Modi,instead of the unfortunate middle class and honest taxpayers,a paltry % of the nation's population who are being crushed and flattened by taxes and more taxes. If anyone thinks that our financial situ is healthy,the reality at ground level as perceived by the common man is anything but that. The armed forces will be lucky if there is enough moolah for part of their desperately rqd. needs. Only the smaller stuff like small arms,ammo,some spares,etc.are being pushed through by an energetic DM.The big tkt. items are still in the air.

So gents,the next time some banking low-life calls you up and reminds you about your home loan EMI,tear into him,chew him up with the choicest of phrases parliamentary,demand of him why he and his bank are sitting on their backsides not going after the scamsters magnus,who've looted and scooted with billions of the nations',your and my money actually.Scream at him and tell him to call one Jet Li in Delhi for the same and slam the phone down on him! Heads have to roll,from the rareified heights of the RBI down to the lowest life in banking circles who've helped perpetrate such scams.

they may not be the only bunch of guys running such a scam.

there may be a whole lot of them in a whole lot of banks doing the same.

it needs an industry wide set of forensic audits to put this to rest and done quickly too.

[anupmisra]

Simply an example has to be made out of these scumbags!

There's a saying in Hindi which goes something like this - "Iss Hamam Mein Sab Nangey Hain". Let him who is without sin cast the first stone.

[IndraD]

if large debts/transactions are audited on regular basis by local bank as well as RBI, why this went unnoticed since 2014> this is what is discomforting!

[chanakyaa]

they may not be the only bunch of guys running such a scam.

there may be a whole lot of them in a whole lot of banks doing the same.

it needs an industry wide set of forensic audits to put this to rest and done quickly too.

Now I wonder what % of psu NPA are part of this systematic white collar crime, with wink wink nod nod of the entire bureaucracy. Since PNB took 5000 cr of recap money, can the entire fraud be forced to put out in the public domain using RTI?

Added later: according to Reuter under RTI it has come to light that according to RBI state run banks have reported 8,670 cases of loan fraud cases totaling rs. 612 billion over the last 5 years

[Vips]

The striking thing is how large amounts of funds can be diverted by just a single entry (electronic or otherwise) without checks and balances in Public sector Banks.

If people remember Harshad Mehta and Hiten Dalal played the stock market scam by taking advantage of the loophole of security investment in RBI by banks which were done on the basis of a single journal entry called Bankers receipts and here Nirav Modi exploited the LOU loophole.

These things would have never happened in a million years in a Private sector Bank.

[Suraj]

PNB itself isn't the entity who lost money. Their systems were used to generate fake LOUs. Others lent money on the basis of those LOUs on the SWIFT system, which PNB itself wasn't aware of because their external and internal systems were not synchronized. It's not clear the loans themselves are NPA (yet).

As it stands, my understanding is that money has not been lost as such. Rather, credit was obtained by fraudulent means with very little to no undertaking oversight or collateral from the debtor .

The matter was found when the debtors came asking for more money and said they didn't seek such collateral before. The ones paying back the cash through bankruptcy proceedings if needed, ultimately would be the jewelry company and the men in question. PNB is simply going to be in trouble if the proceedings carry on and the money cannot be easily recovered.

Legally this is going to be hot. The law will have to prove beyond reasonable doubt that the two flunkies within PNB worked in collusion with the debtors. The debtors are going to surely feign ignorance. PNB on the other hand clearly was clueless...

Of course the larger picture is that many companies may have used such loopholes to obtain credit on such lax terms, which has a direct bearing on why the NPA level is so high, because lack of adequate lending care means they don't care about losing the money , after lining their own pockets first of course.

[Vips]

PNB is ultimately responsible for and will have to pay the amount if the other banks which have lent money on the basis of the LOU issued by PNB do not receive the funds back with interest from Nirav Modi and his group companies.

[Gus]

When X lakh crores of NPA was announced, that did not include this money - right? but these are still liabilities for the bank and its an open question if assets can be seized and losses can be offset/minimized ???

My worry is, if this ends up NPA, the public will end up eating the loss.

[vijayk]

It's worth first reading the details of the fraud before throwing random technology at it. This is an issue with how banks manage internal and external bookkeeping. In effect two independent ledgers that weren't in sync. It would be no different with blockchain - they'd just be two different ones. Technology cannot replace lax procedural framework.
PNB fraud explained: How India’s 2nd largest PSU bank lost Rs11,400 crore

The bank alleged two junior employees at the Mumbai branch had helped the companies and people managing them get “letters of undertaking” (LoUs) from it without having a sanctioned credit limit or maintaining funds “on margin”. The LoUs were used to obtain short-term credit from overseas branches of other Indian banks, PNB said.

PNB says that on 16 January the accused firms presented a set of import documents to the Mumbai branch and requested buyers’ credit to pay overseas suppliers. Since they had no pre-arranged credit limit, the branch official asked the companies to put down the full amount as collateral so the bank could issue LoUs to authorize the credit.

When the firms argued that they had used such facilities in the past without keeping any money on margin, PNB scanned through records and found no trace of any transactions, according to the bank’s account.

It then found that two junior employees had issued LoUs on the SWIFT interbank messaging system without entering the transactions on the bank’s own system. Such transactions went on for years without detection, PNB said.

Banking sources have said in some banks the SWIFT system, which is used for international transactions, and the core banking system work independently of each other. In PNB’s case, it said the outstanding LoUs were not available on its core banking system run on Infosys’s Finacle software, thus the LoUs issued went undetected.

The whole idea of Blockchain is single ledger... Here obviously they found a loophole because there are 2 different ledgers which are not connected i.e. silos. In an integrated wold, there would be only single ledger not multiple ones or entry would be made into internal system which will post to SWIFT w/o any independent access. Most likely they have 2 different entry points. Wonder if this is 2 low level employees who knew this or if top management is involved too. wink wink nudge nudge ...

[vijayk]

The striking thing is how large amounts of funds can be diverted by just a single entry (electronic or otherwise) without checks and balances in Public sector Banks.

If people remember Harshad Mehta and Hiten Dalal played the stock market scam by taking advantage of the loophole of security investment in RBI by banks which were done on the basis of a single journal entry called Bankers receipts and here Nirav Modi exploited the LOU loophole.

These things would have never happened in a million years in a Private sector Bank.

Private banks would invest in technology upgrade. Here obviously no one bother even when RBI asked them to plug this loophole in 2016.

[Suraj]

PNB is ultimately responsible for and will have to pay the amount if the other banks which have lent money on the basis of the LOU issued by PNB do not receive the funds back with interest from Nirav Modi and his group companies.

That would be hard to do in court. PNB issued a (fraudulently generated) understanding about creditworthiness . The actual credit arrangement was between the jewelers and others. It's like a crook getting a letter saying he's a fine upstanding gentleman from A, and getting loans from B, C, D. The arrangements are ultimately between the crook and the others. Of course PNB is due to face penalties for such poor transaction systems that enable people to generate fake SWIFT transactions.

[Suraj]

The whole idea of Blockchain is single ledger... Here obviously they found a loophole because there are 2 different ledgers which are not connected i.e. silos. In an integrated wold, there would be only single ledger not multiple ones or entry would be made into internal system which will post to SWIFT w/o any independent access. Most likely they have 2 different entry points. Wonder if this is 2 low level employees who knew this or if top management is involved too. wink wink nudge nudge ...

What I explained earlier is that blockchain is not a solution here. It's just a fancy name for a distributed ledger authentication system. It fixes a different problem - the authenticity of one ledger. It does not prevent the creation or existence of multiple parallel ledgers. As such, its presence or absence has no bearing upon this scam - the existence and functionality of this loophole is invariant of how the ledgers themselves are maintained, blockchain or a thick dusty book - the problem is there were two of them.

[jpremnath]

What depressed me the most was there was a guy who did research into Gitanjali and found how they were cooking their books and taking loans based on receivables and stuff when they had none..he complained to every authority from ROC, SEBI and to even PMO..in 2016..The relevant authorities who should have done the checks would have been compromised enough that they closed the case even without doing any investigation. This shows the modus operandi was widespread among the jewelers/diamond business community and any investigation then would have opened a can of worms...

https://timesofindia.indiatimes.com/ind ... 934656.cms

https://www.youtube.com/watch?v=UbjHVnXd6bg&t=3s

[jpremnath]

It was so convenient for PNB to come with a complaint after the NM guy left the country with his family and entourage...now good luck with trying to get a guy with a belgian passport deported back..our executive has been oh so efficient in getting VM back after all the circus..

These PSBs are being so callous with public money and their managers are getting scot free every single time..ones blood boil to see them come to every press brief with "someone else did this and this is not my problem" attitude ...all these lot..SBI, PNB, IOB, the rest ...they lie through their teeth with every quarterly results about these NPAs.. keep claiming NPA issues have bottomed out and comes with a new number the next time..Even Axis bank is as bad as the PSBs...Things look so messy that I am worried we have a full blown banking crisis in our hands and everyone seem to be in denial...

[Vips]

PNB is ultimately responsible for and will have to pay the amount if the other banks which have lent money on the basis of the LOU issued by PNB do not receive the funds back with interest from Nirav Modi and his group companies.

That would be hard to do in court. PNB issued a (fraudulently generated) understanding about creditworthiness . The actual credit arrangement was between the jewelers and others. It's like a crook getting a letter saying he's a fine upstanding gentleman from A, and getting loans from B, C, D. The arrangements are ultimately between the crook and the others. Of course PNB is due to face penalties for such poor transaction systems that enable people to generate fake SWIFT transactions.

PNB can now cannot escape its liability stating that the LOU was fraudulently generated. Ultimately the LOU undertaking was given by a PNB employee using his authorised passcode on SWIFT . The lending banks will simply say that if PNB employees bypassed its internal messaging system in order to avoid detection, and placed instructions via the Swift global payment system asking overseas branches of Indian banks to fork out the cash as loans, then it is PNB's failure. LOU is a guarantee issued by a bank. The lenders who gave the money to the jeweller was based on the LOU issued by PNB.What is the use of a guarantee if it can be denied later and after the fact by the issuing bank. It is simply ridiculous.

[vijayk]

criminal action need to be take against these bank managers. Most of them made a lot of money during DeMo too.

Once bank manager propsoes to open a company to do software exports:

Modus operandi - Will sanction loan. His wife will be partner in the company. Company will buy 2 buildings. Try software business. if it works, it works. if it fails, building cost will go up in 2-3 years. make money and pay off the loan. Take the balance. Never happened and will never happen.

[abhijitm]

To give you a clue as to how serious the situ is,I got a call this morning at the impolite hour of 8am (!) from a joker of a bank,asking me when my next EMI was forthcoming,after I had just four days ago paid it! I was so enraged as it came just after reading the latest news of the PNB scam,that I tore into him and demanded why he wasn't following up on the key defaulters and scamsters like Mallya.Modi and Modi,instead of the unfortunate middle class and honest taxpayers,a paltry % of the nation's population who are being crushed and flattened by taxes and more taxes. If anyone thinks that our financial situ is healthy,the reality at ground level as perceived by the common man is anything but that. The armed forces will be lucky if there is enough moolah for part of their desperately rqd. needs. Only the smaller stuff like small arms,ammo,some spares,etc.are being pushed through by an energetic DM.The big tkt. items are still in the air.

So gents,the next time some banking low-life calls you up and reminds you about your home loan EMI,tear into him,chew him up with the choicest of phrases parliamentary,demand of him why he and his bank are sitting on their backsides not going after the scamsters magnus,who've looted and scooted with billions of the nations',your and my money actually.Scream at him and tell him to call one Jet Li in Delhi for the same and slam the phone down on him! Heads have to roll,from the rareified heights of the RBI down to the lowest life in banking circles who've helped perpetrate such scams.

You got a wrong person sir. Bank employess do not call you for EMIs. They outsource it to various agencies. Every day report goes to them with action to be taken. Like reminder, warning, stern warning and lastly gaalibazi. Those agency employees just do their job as what they are asked to do.

[vijayk]

http://www.firstpost.com/business/punja ... 54591.html

Punjab National Bank scam: RBI data revealed through RTI shows India's fraud problems extend far beyond PNB

But in June 2017 the central bank, in its Financial Stability Report, called frauds in banks and financial institutions “one of the emerging risks to the financial sector”.

“In a number of large value frauds, serious gaps in credit underwriting standards were evident,” the RBI said, adding that some of the gaps include lack of continuous monitoring of cash flows and cash profits, diversion of funds, double financing and general credit governance issues in banks.

The RBI has been commended for forcing Indian banks to fully disclose its bad loans, speed up their recovery, and stop hiding fraud cases as non-performing assets.

Yet to some critics, the RBI has, at the same time, been too guarded about publicly sharing data on loan defaults or fraudulent loans. This is partly due to legal constraints on disclosing individual cases and worries investors would pummel the affected banks, making loan recovery even harder.

PNB topped the list with 389 cases totalling 65.62 billion rupees ($1.03 billion) over the last five financial years, in terms of the total amounts involved.

Reuters was unable to obtain a detailed breakdown of the exact nature and method of the loan frauds the banks reported to RBI over the last five financial years.

After PNB, Bank of Baroda had the highest amount of loan fraud reported, with 44.73 billion rupees from 389 cases and Bank of India ranked third, with loan frauds totalling 40.5 billion rupees from 231 cases over the same period, the data shows.

India’s biggest lender, State Bank of India reported 1,069 loan fraud cases in the last five financial years but did not disclose the amount.

[chetak]

The striking thing is how large amounts of funds can be diverted by just a single entry (electronic or otherwise) without checks and balances in Public sector Banks.

If people remember Harshad Mehta and Hiten Dalal played the stock market scam by taking advantage of the loophole of security investment in RBI by banks which were done on the basis of a single journal entry called Bankers receipts and here Nirav Modi exploited the LOU loophole.

These things would have never happened in a million years in a Private sector Bank.

certain large private banks in India are a recurring theme in financial scams. One of the more prominent ones are involved this time too. This particular private bank was in the limelight for its antics during the demon exercise too.

Like certain huge banks, globally known, pay billions per year in fines for money laundering and drug financing proceeds being deposited in their branches.

The banks should be concentrating more on " know your employees " initiatives, rather than harassing their honest customers with their highly irritating and intrusive know your customer (KYC) nonsense.

[abhijitm]

Yes, it sounds absurd that the bank's internal system was not coordinated with their SWIFT transaction system. No amount of technology can fix such a basic failure to keep internal and external systems reconciled. As such, PNB didn't "lose" money. Their broken systems were misused to generate guarantees on SWIFT used to obtain credit elsewhere. Technically the fraudsters should be ones after whom all the other parties who lent them money should go, though PNB cannot avoid blame for such a systems issue.

RBI does system audit each year. How did they overlook this lapse and let it go? Which CA firm audited PNB systems? What recommendations it came up with? Lot of questions on the entire system.

[Suraj]

PNB can now cannot escape its liability stating that the LOU was fraudulently generated. Ultimately the LOU undertaking was given by a PNB employee using his authorised passcode on SWIFT . The lending banks will simply say that if PNB employees bypassed its internal messaging system in order to avoid detection, and placed instructions via the Swift global payment system asking overseas branches of Indian banks to fork out the cash as loans, then it is PNB's failure. LOU is a guarantee issued by a bank. The lenders who gave the money to the jeweller was based on the LOU issued by PNB.What is the use of a guarantee if it can be denied later and after the fact by the issuing bank. It is simply ridiculous.

I'm not saying that PNB has no liability. I'm saying that the terms of the loan are entirely between the creditors and the jewelers. In a court of law, PNB is going to feign incompetence but point out that they have no role in how much money was loaned with fake LOUs. They'll argue that they're not the only bank with such absurdly unsynchronized internal and external ledgers. They'll also argue that the creditors did not call them and ask if the LOIs were real. From a legal perspective, they're going to get the blame for incompetence, but the money was exchanged between two other parties, so they will argue that the creditors should go after those who were given the money .

The way I see it, this is going to accelerate the public sector bank merger plans. There are 20+ PSBs. Thats WAY too many. Many are undercapitalized, lacking modern technology, and leaking credit like a sieve, or impacting the private banks by issuing dud LOUs like this. Merge them all into 5-6 large banks, with adequate technological upgrades and capital bases.

[chetak]

[chanakyaa]

Unless one is an expert in banking law and regulation, discussion on whose liability it ends up becoming is going to be futile. NM is enjoying the interest in phareign country.

So PNB raises 5000 crore in Dec 2017 thru Qualified Institutional Placement (QIP). What a timing? Did the management know this was coming? Additionally, they expected another 5,500 crore from govt. Magically, both numbers add up to losses in the headlines. The QIP was issued at 168 rupee and now share price is 126 rupee. Investors lost 1100 crores in two months. Hello? Where are the securities lawsuits?

[vijayk]

Yes, it sounds absurd that the bank's internal system was not coordinated with their SWIFT transaction system. No amount of technology can fix such a basic failure to keep internal and external systems reconciled. As such, PNB didn't "lose" money. Their broken systems were misused to generate guarantees on SWIFT used to obtain credit elsewhere. Technically the fraudsters should be ones after whom all the other parties who lent them money should go, though PNB cannot avoid blame for such a systems issue.

RBI does system audit each year. How did they overlook this lapse and let it go? Which CA firm audited PNB systems? What recommendations it came up with? Lot of questions on the entire system.

Good question. Looks like RBI advised all banks to make sure to validate SWIFT with internal accounts in 2016. How come they missed to audit this? Sad state of affairs.

[vijayk]

https://qz.com/1209154/punjab-national- ... d-do-next/

What questions does this fiasco raise about corporate governance at banks?

The investigation needs to ascertain when it (the transactions) became fraudulent and if the relationship with the customer was fraudulent right from the start or it turned so during the course of time. Right now, what the banks involved, especially PNB, need to determine is if this was a systemic issue or not. If the systems were in place but individuals failed, then those individuals need to be brought (to book). But if it is a problem with the system, then the risk-based practices need an overhaul.

What steps should be taken if they determine that this is indeed a systemic problem?

If they find out that there is systemic lacuna…I believe they will ask a special audit to be conducted in this case to determine why it went unnoticed. Rs11,400 crore is a big amount and, therefore, I hope the bank board will directly monitor the audit. Even the government of India and the RBI would be looking at it very closely.

here has been some debate about who should bear the brunt—PNB or other banks as well.

It depends on the validity of the document (letters of credit). If the document is valid, then PNB will be entirely responsible. If it was forged or invalid, then the sanctioning party (other banks) will become the bearer of liability. And if the sanctioning bank had asked for confirmation and if PNB had confirmed it, then again the responsibility shifts to PNB. Therefore, the validity and confirmation asked and given are going to be key in this case.

What is a letter of undertaking?

It is a guarantee that a bank is obliged to repay the loan if the actual borrower—Nirav Modi in this case—fails.

So, were the loans approved by PNB?

The first LoU was issued by two PNB employees on behalf of the bank via SWIFT, sanctioning loans to be disbursed abroad.

Where did it go wrong?

When the credit due was not paid in time, more LoUs were issued on behalf of PNB to offset the payment​.

What is “offsetting the payment”?

When the borrower did not repay the first Rs800 crore, the bank ought to have stepped in and booked a default by the group company. Instead, the two PNB employees, who were allegedly party to the fraud, issued more LoUs on behalf of PNB, asking other banks to give out fresh loans to the firms. This continued until two weeks before the whole operation came to light after some of Modi’s employees visited the bank on Jan. 05. The management was caught napping and the overdue loans exceeded Rs11,000 crore.

Are we sure the fraud did not exceed Rs11,000 crore?

“I don’t think so, but we will know after the investigation,” PNB managing director and CEO Sunil Mehta said on Feb. 15. If the probe reveals that the amount exceeded the current estimate, the bank’s liability may increase. “Gross exposure is significantly higher at $1.8 billion, though, at this juncture, it will be difficult to ascertain the financial impact across the banking system as investigations are on,” Edelweiss Research said in a note on Feb.15.

How did the management miss a colossal fraud like this for so many years?

PNB sources say the bank isn’t fully integrated on a ​​Core Banking System (CBS) which could have immediately detected the discrepancy.

[Supratik]

It is likely that senior bank officials are involved. Hard to believe junior banking staff authorized to issue LOUs in billions of dollars. Needs a CBI probe.

[VKumar]

It is likely that senior bank officials are involved. Hard to believe junior banking staff authorized to issue LOUs in billions of dollars. Needs a CBI probe.

This level of lending will require RBI approval. Cannot be possible unless Cabinet Ministers also involved.

[Supratik]

Arrests have started happening.

https://www.msn.com/en-in/money/topstor ... spartanntp

[chetak]

RBI does system audit each year. How did they overlook this lapse and let it go? Which CA firm audited PNB systems? What recommendations it came up with? Lot of questions on the entire system.

Good question. Looks like RBI advised all banks to make sure to validate SWIFT with internal accounts in 2016. How come they missed to audit this? Sad state of affairs.

This is an unnecessary instruction.

It means that someone knew what was happening and simply wanted to cover their ass.

This is simply a matter of good financial hygiene and standard industry practice. It is the regulators job to check and not simply issue mundane and infructuous instructions.

Post such an instruction, its highly suspicious that none of the internal, external as well as the statutory auditors picked up on it.

[Supratik]

The banking scam in India happens in the following way. A "businessman" with appropriate political connections approaches a bank for money. The banking staff is managed through bribes or coercion. The money is given for the "businessman" to play. The politician gets a cut. The "businessman" then blows off the money. The bank declares it as NPA or default or in this case scam. The money belong to the common people of India. Meanwhile they will not give a single penny to a thelawala to expand his business. Then the politician uses the tax payers money to recapitalize the bank and save it from going under. It is a cycle that is repeated kinda like Air India. They play with your money and have a good time. If the Modi govt had fired or prosecuted top banking officials for the NPA mess this would have been detected much earlier. I would count this as a major failure.

[vijayk]

TIMES NOW‏Verified account @TimesNow

After Gokulnath Shetty retired, Nirav Modi's cover exposed. Ground report by @Aruneel_S #BringBackNiravModi

https://twitter.com/TimesNow/status/964754559506694144

Looks like this Shetty was Deputy manager

[chetak]

Ultimate irony revealed. When the scam was at its peak, Punjab National Bank received Vigilance Excellence Award from CVC for adhering to RBI guidelines and strict guidelines in March 2017. Report by @bhavatoshsingh #BringBackNiravModi

https://twitter.com/TimesNow/status/964740963905159168

[chetak]

TIMES NOW‏Verified account @TimesNow

After Gokulnath Shetty retired, Nirav Modi's cover exposed. Ground report by @Aruneel_S #BringBackNiravModi

https://twitter.com/TimesNow/status/964754559506694144

Looks like this Shetty was Deputy manager

instead of getting into a samjautha with the next incumbent, the company asked for a similar letter and when the new guy said deposit a 100% of the amount as collateral, the company rep said but we have been doing this in the past and no one asked us for collateral. On checking the records, the PNB couldn't find any reference to the said transactions. Talk about ill informed nirav modi company employees.

That set the cat among the pigeons and the rest unraveled rapidly.

when nirav nodi and his uncle couldn't manage the situation because of the new manager and his alerting the management.

Incidentally, the shetty guy just before he left gave a validity of 360 days to the latest set of letters and so the scam remained quiet for one year after he left. Otherwise they were rolling over the letters every 90 days.

looks like nirav modi was distracted by all that poontang floating around him, so he slipped up in suborning the new guy.

many a slip, between the cup and the lip, especially when a stiff pr!k gets in the way.

[IndraD]

Arrests have started happening.

https://www.msn.com/en-in/money/topstor ... spartanntp

whatever....it has given a huge stick to modi baiters to do = = between cong & modi...and 2019 is not far away.
of course be assured nirav is never coming back.
Malya has been approved £70000/month of allowance to keep his opulent life style afloat by British court.