Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


Is PNB Brady branch alone at fault for the banking scam?

Author: Team Finapolis/Wednesday, February 28, 2018/Categories: Banking & Financial Services

Is PNB Brady branch alone at fault for the banking scam?

Apart from the treachery of various officers in the Punjab National Bank (PNB), there are a several other lapses that took place leading to the Rs 12,600 crore banking fraud. Questions have been raised about the negligence of the senior officers of the Punjab National Bank to the Reserve Bank of India for not keeping an eye out for such transgressions. At the end of it all, the most impertinent question is whether it was just Nirav Modi and Mehul Choksi who defrauded with the bank’s money or is there more that meets the eye? Let’s have a look at how the fraud unfolded.

On February 14, the Punjab National Bank sent a notice to the Bombay Stock Exchange stating that it had detected a fraud amounting to $1.8 billion at its Brady Branch House with a connivance of a few select account-holders. In the heart of the matter was billionaire diamantaire Nirav Modi and his uncle Mehul Choksi, who is also the promoter of Gitanjali Gems, who were believed to have used the letters of undertaking (LoU) issued by the PNB branch to borrow money from some other overseas banks as well. The matter was referred to the Central Bureau of Investigation (CBI) who immediately issued lookout notices for Modi, Choksi and their family. However, the two jewellers had already left the country in January accompanied by a few others.

While the investigation is still on, here are some of the lapses that have emerged till now:

  • A junior officer at the Punjab National Bank Brady House branch issued letters of undertaking (LoU) in connivance with a few of Nirav Modi’s men
  • LoUs are like bank guarantees that allow customers of one bank raise money from other banks overseas. LoUs are issued based on collaterals. Nirav Modi and Mehul Choksi never produced any collateral for the LoUs
  • LoUs are transmitted to other banks through SWIFT messages. Each SWIFT transaction generates a new reference number. In the Nirav Modi case, the same number was used for seven years
  • The money advanced by the foreign banks had to be used to pay for imports of diamonds. However, the funds were often diverted to repay other loans
  • LoUs are issued for 75 days. In this case the PNB issued LoUs for 365 days
  • No entry was made of these LoUs in the NOSTRO account which is the book of LoUs
  • The same officer who has now been charged for corruption had not been transferred from his desk for many years unlike the usual practice in the banking sector
  • The general manager who is supposed to conduct internal audits in the branch every quarter did not raise alarm about the LoUs, claiming he was unaware of the matter
  • The Reserve Bank of India conducted the last audit of the Brady branch in 2009. No audits were conducted post that year

The fact that there have been so many lapses raises questions on the possibility of connivance at different levels. Is the Rs 12,600 crore-fraud just the tip of the iceberg unearthed by the CBI and is there more? These questions are yet to be answered.  

Print Rate this article:
No rating

Number of views (300)/Comments (0)

rajyashree guha

Team Finapolis

Other posts by Team Finapolis
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free