NEW DELHI/MUMBAI: The Punjab National Bank department in south Mumbai sits just down the road from both the Bombay Stock Exchange and the Reserve Bank of India, at a bodily centre of one of the crucial international's fastest rising main economies.
The department, clad in a stately colonial edifice, is now also at the center of a fraud case connected to billionaire jeweller Nirav Modi that has shaken confidence in a state banking sector that accounts for some 70 p.c of India's banking assets.
It used to be here, in line with accounts from Punjab National Bank executives and executive investigators, that a lone middle-aged manager, later aided by his young subordinate, engineered fraudulent transactions totalling about $1.eight billion from 2011 to 2017.
The bank says it's still investigating how they have been able to do so and move undetected for goodbye. The accounts given by current and former executives who spoke to Reuters suggest an answer as simple as it's alarming: nobody used to be paying attention.
The still unravelling tale of how the fraud happened - which includes the alleged misuse of the SWIFT interbank messaging device and incomplete ledger entries - points to a breakdown in exams and balances, and standard banking practices, they mentioned.
The obvious failure of someone to note the biggest fraud in Indian banking history till this January unearths a "rot" within the state monetary sector that goes beyond one lender, mentioned Santosh Trivedi, who spent just about 4 decades at Punjab National Bank prior to retiring in 2016 as a senior manager of audit and inspection within the New Delhi head place of work.
"Unless this rot is controlled at this stage, to the satisfaction of the international community, it is dangerous for the Indian system," Trivedi mentioned.
JEWELLER TO THE STARS
Last month, Punjab National Bank, referred to as PNB, filed an preliminary legal criticism with the rustic's Central Bureau of Investigation (CBI) accusing famous person jeweller Nirav Modi and others of defrauding the bank and causing it a loss of Rs 280 crore (greater than $43 million).
The allegations against a man whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson generated a flurry of protection across India's TV monitors and newspapers. Nirav has now not publicly commented at the case. He and his family left the rustic in previous January, in line with Indian officials, and a decision on Sunday to a corporate spokesperson who has handled media for Nirav in the past went unanswered. No charges were filed against him.
d
But as more details surfaced about what is alleged to have happened at the state-run bank, which used to be based in 1894, the stakes have got upper.
A evaluate of bank and executive documents associated with the case - and interviews with current and former PNB executives, bank auditors and professionals - points to a loss of duty and standards within the country's public banking device.
As of ultimate September, those banks held about 87 p.c of the Indian banking device's Rs nine.46 lakh crore (about $147 billion) of soured loans that are non-performing, restructured or rolled over.
A preliminary investigation by the country's tax authority mentioned of the PNB fraud that "the hit Indian banks would take in the end may well exceed" $three billion, in line with an interior observe seen by Reuters.
"Yes, there is a problem. We have recognised it," bank Chief Executive Officer Sunil Mehta mentioned throughout an investor call on Friday. "We are in the process of fixing it up. We'll see wherever the loopholes are there. The people-related risk, we are going to mitigate."
But in spite of that promise of action, one current senior government at the bank's headquarters in New Delhi mentioned additional problems may just now not be dominated out.
"In Indian banks, we don't work under ideal situation," the manager, who declined to be recognized, mentioned throughout an interview at his place of work. "We are in the business of risk, you can't say there won't be road accidents."
FRAUDULENT GUARANTEES
According to court docket documents filed on Saturday by the CBI, department deputy manager Gokulnath Shetty issued a series of fraudulent Letters of Undertaking - essentially promises sent to other banks so that they would supply loans to a buyer, in this case a group of Indian jewelry corporations.
These letters have been sent to overseas branches of banks, thought to be virtually all Indian, that would then lend cash to the jewelry corporations.
Shetty did so using the bank's SWIFT device to log in with passwords that allowed him, and in a minimum of some cases a more junior respectable, to serve as both the one that sent messages and as the one that reviewed them for approval, in line with court docket documents and interviews with bank executives.
"The involvement and connivance of more staff members and outsiders at this stage cannot be ruled out," mentioned a CBI record submitted to the court docket in Mumbai.
Shetty is now in custody and he has now not publicly responded to the allegations. Calls to a mobile phone indexed for his spouse on court docket documents were not responded.
Asked concerning the password sharing, the senior Punjab National Bank government mentioned it used to be now not best apply but within the on a regular basis bustle of Indian banks it occurs.
"When you are flooded with customers in the morning, with 101 demands, you look for shortcuts," he mentioned. "You do somebody else's work, somebody else does your work. You are not working in an ideal situation."
A second senior government at the bank's headquarters, who also asked that his identify now not be used, echoed that sentiment.
After getting into the transactions on SWIFT, the CBI documents mentioned, Shetty - who labored at the similar department from 2010 to 2017 in spite of standard bank practices of normal rotations - didn't document them at the bank's interior device.
Because PNB's interior instrument device used to be now not connected with SWIFT, workers have been anticipated to manually log SWIFT job. If that used to be now not completed, the transactions didn't show up at the bank's books.
A SWIFT spokeswoman mentioned in a remark ultimate week that the company does now not comment on particular person consumers.
All together, there were a minimum of 150 such fraudulent Letters of Undertaking throughout a seven-year period, in line with a CBI respectable who spoke at the condition of anonymity.
In addition to detaining Shetty and the junior worker, the CBI has arrested a man who it described in court docket documents as both being "aware about the modus operandi of the entire scams" and serving as a director in "15 to 16 companies of Nirav Modi Group".
An older brother of the person, Hemant Bhatt, mentioned outside a court on Saturday that he used to be blameless and the allegations have been the result of a "media trial". The brother didn't give his identify.
An uncle of the junior bank worker, Manoj Kharat, instructed a Reuters reporter outside the court docket that his nephew used to be "just following orders of superiors" and added "he wasn't aware of what he is doing".
All 3 are to be held in custody till March three. No charges have to this point been laid against them.
FINANCIAL HIT
A Feb. 12 observe seen by Reuters, sent from PNB to other banks and marked "confidential", mentioned: "None of the transactions were routed through the CBS system" - the bank's interior network - "thus avoiding early detection of fraudulent activity."
The Reserve Bank of India didn't respond to a request for remark about whether or not it had previous detected any anomalies in Punjab National Bank's operations or whether or not it might take further action in auditing banks.
In a remark past due on Friday the central bank known as the fraud at PNB "a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls". It also mentioned the central bank "has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action".
The CBI bureaucracy says the fraudulent Letters of Undertaking are likely to add up to "the vicinity of" Rs 6,000 crore, or greater than $930 million. Bank executives say the volume tallied by working back thru interior data is $1.77 billion.
With assets of about $120 billion as of December, in line with bank filings, PNB will have the ability to cover any related losses, though it's still an enormous hit for a bank whose stock marketplace value used to be most effective $6.1 billion prior to it printed details of the alleged fraud ultimate week. It has since seen $1.four billion wiped off that marketplace capitalisation.
The mechanics of how the fraud happened, and what it says concerning the underlying trade tradition, are being worried, mentioned Abizer Diwanji, national leader for monetary services in India at accounting company Ernst & Young.
"Checks and balances are there in public banks as well but they are not followed earnestly," mentioned Diwanji, who has tracked India's monetary services trade for greater than two decades.
"This is where the discipline, the culture is not there. I always believe that we don't have the culture to manage risks, even operational risks. PNB is not an outlier in this."
To keep watch over such dangers, maximum private sector banks require branches to direction SWIFT messages thru their central workplaces, Diwanji mentioned. They also usually integrate their very own instrument programs and SWIFT, which means that job such as a Letter of Undertaking being sent would get mechanically recorded.
Neither is the case at PNB or maximum state-run banks in India, Diwanji mentioned.
Representatives of 2 of the external audit corporations indexed on PNB's annual document for the 2016-17 fiscal year mentioned they might now not have known what happened.
"It was off-books, so auditors will not be in a position to detect it," mentioned Sudesh Punhani, a partner at Chhajed & Doshi.
Asked whether or not the bank's failure to integrate its instrument device and SWIFT used to be a purpose of outrage, Neeraj Golas, a partner at R. Devendra Kumar & Associates, also an external auditor of the bank, mentioned: "True, true - we have to really get into it and understand what all these things are."
The department, clad in a stately colonial edifice, is now also at the center of a fraud case connected to billionaire jeweller Nirav Modi that has shaken confidence in a state banking sector that accounts for some 70 p.c of India's banking assets.
It used to be here, in line with accounts from Punjab National Bank executives and executive investigators, that a lone middle-aged manager, later aided by his young subordinate, engineered fraudulent transactions totalling about $1.eight billion from 2011 to 2017.
The bank says it's still investigating how they have been able to do so and move undetected for goodbye. The accounts given by current and former executives who spoke to Reuters suggest an answer as simple as it's alarming: nobody used to be paying attention.
The still unravelling tale of how the fraud happened - which includes the alleged misuse of the SWIFT interbank messaging device and incomplete ledger entries - points to a breakdown in exams and balances, and standard banking practices, they mentioned.
The obvious failure of someone to note the biggest fraud in Indian banking history till this January unearths a "rot" within the state monetary sector that goes beyond one lender, mentioned Santosh Trivedi, who spent just about 4 decades at Punjab National Bank prior to retiring in 2016 as a senior manager of audit and inspection within the New Delhi head place of work.
"Unless this rot is controlled at this stage, to the satisfaction of the international community, it is dangerous for the Indian system," Trivedi mentioned.
JEWELLER TO THE STARS
Last month, Punjab National Bank, referred to as PNB, filed an preliminary legal criticism with the rustic's Central Bureau of Investigation (CBI) accusing famous person jeweller Nirav Modi and others of defrauding the bank and causing it a loss of Rs 280 crore (greater than $43 million).
The allegations against a man whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson generated a flurry of protection across India's TV monitors and newspapers. Nirav has now not publicly commented at the case. He and his family left the rustic in previous January, in line with Indian officials, and a decision on Sunday to a corporate spokesperson who has handled media for Nirav in the past went unanswered. No charges were filed against him.
d
But as more details surfaced about what is alleged to have happened at the state-run bank, which used to be based in 1894, the stakes have got upper.
A evaluate of bank and executive documents associated with the case - and interviews with current and former PNB executives, bank auditors and professionals - points to a loss of duty and standards within the country's public banking device.
As of ultimate September, those banks held about 87 p.c of the Indian banking device's Rs nine.46 lakh crore (about $147 billion) of soured loans that are non-performing, restructured or rolled over.
A preliminary investigation by the country's tax authority mentioned of the PNB fraud that "the hit Indian banks would take in the end may well exceed" $three billion, in line with an interior observe seen by Reuters.
"Yes, there is a problem. We have recognised it," bank Chief Executive Officer Sunil Mehta mentioned throughout an investor call on Friday. "We are in the process of fixing it up. We'll see wherever the loopholes are there. The people-related risk, we are going to mitigate."
But in spite of that promise of action, one current senior government at the bank's headquarters in New Delhi mentioned additional problems may just now not be dominated out.
"In Indian banks, we don't work under ideal situation," the manager, who declined to be recognized, mentioned throughout an interview at his place of work. "We are in the business of risk, you can't say there won't be road accidents."
FRAUDULENT GUARANTEES
According to court docket documents filed on Saturday by the CBI, department deputy manager Gokulnath Shetty issued a series of fraudulent Letters of Undertaking - essentially promises sent to other banks so that they would supply loans to a buyer, in this case a group of Indian jewelry corporations.
These letters have been sent to overseas branches of banks, thought to be virtually all Indian, that would then lend cash to the jewelry corporations.
Shetty did so using the bank's SWIFT device to log in with passwords that allowed him, and in a minimum of some cases a more junior respectable, to serve as both the one that sent messages and as the one that reviewed them for approval, in line with court docket documents and interviews with bank executives.
"The involvement and connivance of more staff members and outsiders at this stage cannot be ruled out," mentioned a CBI record submitted to the court docket in Mumbai.
Shetty is now in custody and he has now not publicly responded to the allegations. Calls to a mobile phone indexed for his spouse on court docket documents were not responded.
Asked concerning the password sharing, the senior Punjab National Bank government mentioned it used to be now not best apply but within the on a regular basis bustle of Indian banks it occurs.
"When you are flooded with customers in the morning, with 101 demands, you look for shortcuts," he mentioned. "You do somebody else's work, somebody else does your work. You are not working in an ideal situation."
A second senior government at the bank's headquarters, who also asked that his identify now not be used, echoed that sentiment.
After getting into the transactions on SWIFT, the CBI documents mentioned, Shetty - who labored at the similar department from 2010 to 2017 in spite of standard bank practices of normal rotations - didn't document them at the bank's interior device.
Because PNB's interior instrument device used to be now not connected with SWIFT, workers have been anticipated to manually log SWIFT job. If that used to be now not completed, the transactions didn't show up at the bank's books.
A SWIFT spokeswoman mentioned in a remark ultimate week that the company does now not comment on particular person consumers.
All together, there were a minimum of 150 such fraudulent Letters of Undertaking throughout a seven-year period, in line with a CBI respectable who spoke at the condition of anonymity.
In addition to detaining Shetty and the junior worker, the CBI has arrested a man who it described in court docket documents as both being "aware about the modus operandi of the entire scams" and serving as a director in "15 to 16 companies of Nirav Modi Group".
An older brother of the person, Hemant Bhatt, mentioned outside a court on Saturday that he used to be blameless and the allegations have been the result of a "media trial". The brother didn't give his identify.
An uncle of the junior bank worker, Manoj Kharat, instructed a Reuters reporter outside the court docket that his nephew used to be "just following orders of superiors" and added "he wasn't aware of what he is doing".
All 3 are to be held in custody till March three. No charges have to this point been laid against them.
FINANCIAL HIT
A Feb. 12 observe seen by Reuters, sent from PNB to other banks and marked "confidential", mentioned: "None of the transactions were routed through the CBS system" - the bank's interior network - "thus avoiding early detection of fraudulent activity."
The Reserve Bank of India didn't respond to a request for remark about whether or not it had previous detected any anomalies in Punjab National Bank's operations or whether or not it might take further action in auditing banks.
In a remark past due on Friday the central bank known as the fraud at PNB "a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls". It also mentioned the central bank "has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action".
The CBI bureaucracy says the fraudulent Letters of Undertaking are likely to add up to "the vicinity of" Rs 6,000 crore, or greater than $930 million. Bank executives say the volume tallied by working back thru interior data is $1.77 billion.
With assets of about $120 billion as of December, in line with bank filings, PNB will have the ability to cover any related losses, though it's still an enormous hit for a bank whose stock marketplace value used to be most effective $6.1 billion prior to it printed details of the alleged fraud ultimate week. It has since seen $1.four billion wiped off that marketplace capitalisation.
The mechanics of how the fraud happened, and what it says concerning the underlying trade tradition, are being worried, mentioned Abizer Diwanji, national leader for monetary services in India at accounting company Ernst & Young.
"Checks and balances are there in public banks as well but they are not followed earnestly," mentioned Diwanji, who has tracked India's monetary services trade for greater than two decades.
"This is where the discipline, the culture is not there. I always believe that we don't have the culture to manage risks, even operational risks. PNB is not an outlier in this."
To keep watch over such dangers, maximum private sector banks require branches to direction SWIFT messages thru their central workplaces, Diwanji mentioned. They also usually integrate their very own instrument programs and SWIFT, which means that job such as a Letter of Undertaking being sent would get mechanically recorded.
Neither is the case at PNB or maximum state-run banks in India, Diwanji mentioned.
Representatives of 2 of the external audit corporations indexed on PNB's annual document for the 2016-17 fiscal year mentioned they might now not have known what happened.
"It was off-books, so auditors will not be in a position to detect it," mentioned Sudesh Punhani, a partner at Chhajed & Doshi.
Asked whether or not the bank's failure to integrate its instrument device and SWIFT used to be a purpose of outrage, Neeraj Golas, a partner at R. Devendra Kumar & Associates, also an external auditor of the bank, mentioned: "True, true - we have to really get into it and understand what all these things are."
PNB fraud: Former bank official shared passwords to help Nirav Modi
![PNB fraud: Former bank official shared passwords to help Nirav Modi]()
Reviewed by Kailash
on
February 19, 2018
Rating:
