When news of the huge Punjab National Bank (PNB) scam broke in January initial reports said a couple of rogue employees at the bank’s Brady House branch in Mumbai had connived with diamond merchant Nirav Modi and his uncle Mehul Choksi to illegally issue Letters of Understanding (LoUs) and Foreign Letters of Credit (FLCs) that favored the pair.
However, an internal probe by PNB has revealed that the US$2-billion fraud at India’s second largest state-owned bank is far more widespread and escaped detection because of widespread risk-control and monitoring lapses in many areas of the bank, Reuters reports.
The practice of illegally extending credit in favor of firms owned Modi and Choksi started in 2011 and continued till it was discovered in January this year.
India’s top investigating agency, the Central Bureau of Investigation (CBI), has arrested a couple of bank employees, including retired official Gokulnath Shetty, who was allegedly instrumental in issuing fake credit guarantees that bypassed the internal banking system.
Shetty escaped detection because he did not log his SWIFT transactions on the bank’s internal software – something he was supposed to do because the two systems were not integrated.
The PNB’s probe report lays bare lapses that go far beyond a few branch officers. It says failings by 54 officials at the bank, ranging from clerks to foreign exchange managers and auditors to heads of regional offices, allowed the fraud to be perpetrated.
Eight of the 54 officials are among those who have been charged by the CBI for their roles in the scandal, the agency has said.
The report said that one of the reasons the fraud went undetected for years was because of lapses within some of the bank’s critical areas at its New Delhi headquarters, such as its credit review and international banking units.
Modi and Choksi, both of whom left India before PNB filed its first police complaint on January 29, have denied any wrongdoing.
The report was presented to PNB’s fraud risk management arm on April 5. It is part of the evidence submitted by the CBI in its court case against those allegedly involved in the fraud. The report’s findings have not previously been made public.