NEW DELHI/MUMBAI: The RBI has requested commercial lenders to supply it with details of all letters of endeavor - a form of credit score guarantee on the centre of an alleged $2 billion fraud + - issued through them up to now several years, according to four bankers who have seen the directive.
The regulator is ratcheting up force on lenders, expanding its scrutiny and laying down cut-off dates for them to fix gaps of their methods, in the aftermath of the country's greatest financial institution fraud.
Two jewellery teams were accused ultimate month of defrauding state-run Punjab National Bank (PNB) of more than $2 billion (Rs 12,700 crore), mostly via fraudulent promises in keeping with letters of endeavor (LoUs) issued through rogue financial institution workers that they used to lift credit score out of the country. The key accused in the case have denied any wrongdoing.
The Reserve Bank of India (RBI) wrote to all banks per week in the past requesting details of the LoUs that they had written, including the amounts exceptional, and whether or not the banks had pre-approved credit score limits or stored enough cash on margin prior to issuing the promises, the sources mentioned.
One of the sources mentioned the regulator had requested for details of LoUs issued way back to 2011, whilst some other mentioned the deadline for banks to respond was previous this week.
"If there is a problem in one bank, they will be checking the whole system. What's the outstanding? Is it correctly reflecting in the book or not? That kind of thing," mentioned a third source, a senior banker.
The RBI did not immediately reply to a request for remark.
Importers in most cases use LoUs issued through their native financial institution to lift cheaper foreign currencies loans out of the country to fund purchases.
In the case of PNB, financial institution workers who have been accused of pulling off the fraud in connivance with corporations controlled through jewellers Nirav Modi and his uncle Mehul Choksi, allegedly issued LoUs on behalf of the jeweller teams with none pre-approved limit or margin. Modi and Choksi each deny involvement.
The financial institution has additionally mentioned the employees intentionally did not input the LoUs in the financial institution's core accounting system to stop the alleged fraud from being detected.
In sweeping changes to financial institution protocols after the fraud, the RBI had requested banks to conform inside of strict cut-off dates on more than two dozen checkpoints, maximum notably to connect the SWIFT interbank messaging system with their core banking tool through April 30.
Previous central financial institution letters to banks reviewed through Reuters had proven that the RBI had warned banks as early as in 2016 on technical loopholes that it mentioned could divulge the lenders to a heightened risk of fraud, but there was no indication of any fix on maximum counts.
Separately, a senior PNB executive instructed Reuters that the financial institution discovered "procedural lapses involving paperwork" after scanning all its 250 branches that maintain foreign exchange, but added he did not expect its total publicity to the fraud to upward push additional.
The regulator is ratcheting up force on lenders, expanding its scrutiny and laying down cut-off dates for them to fix gaps of their methods, in the aftermath of the country's greatest financial institution fraud.
Two jewellery teams were accused ultimate month of defrauding state-run Punjab National Bank (PNB) of more than $2 billion (Rs 12,700 crore), mostly via fraudulent promises in keeping with letters of endeavor (LoUs) issued through rogue financial institution workers that they used to lift credit score out of the country. The key accused in the case have denied any wrongdoing.
The Reserve Bank of India (RBI) wrote to all banks per week in the past requesting details of the LoUs that they had written, including the amounts exceptional, and whether or not the banks had pre-approved credit score limits or stored enough cash on margin prior to issuing the promises, the sources mentioned.
One of the sources mentioned the regulator had requested for details of LoUs issued way back to 2011, whilst some other mentioned the deadline for banks to respond was previous this week.
"If there is a problem in one bank, they will be checking the whole system. What's the outstanding? Is it correctly reflecting in the book or not? That kind of thing," mentioned a third source, a senior banker.
The RBI did not immediately reply to a request for remark.
Importers in most cases use LoUs issued through their native financial institution to lift cheaper foreign currencies loans out of the country to fund purchases.
In the case of PNB, financial institution workers who have been accused of pulling off the fraud in connivance with corporations controlled through jewellers Nirav Modi and his uncle Mehul Choksi, allegedly issued LoUs on behalf of the jeweller teams with none pre-approved limit or margin. Modi and Choksi each deny involvement.
The financial institution has additionally mentioned the employees intentionally did not input the LoUs in the financial institution's core accounting system to stop the alleged fraud from being detected.
In sweeping changes to financial institution protocols after the fraud, the RBI had requested banks to conform inside of strict cut-off dates on more than two dozen checkpoints, maximum notably to connect the SWIFT interbank messaging system with their core banking tool through April 30.
Previous central financial institution letters to banks reviewed through Reuters had proven that the RBI had warned banks as early as in 2016 on technical loopholes that it mentioned could divulge the lenders to a heightened risk of fraud, but there was no indication of any fix on maximum counts.
Separately, a senior PNB executive instructed Reuters that the financial institution discovered "procedural lapses involving paperwork" after scanning all its 250 branches that maintain foreign exchange, but added he did not expect its total publicity to the fraud to upward push additional.
RBI turns up heat on banks after $2 billion PNB fraud
![RBI turns up heat on banks after $2 billion PNB fraud]()
Reviewed by Kailash
on
March 10, 2018
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