The Reserve Bank of India (RBI) said the failure of internal controls was the main reason for the ₹11,500 crore fraud that occurred in Punjab National Bank (PNB).
‘Operational risk’
The banking regulator, in its first reaction since the issue came to light on Wednesday, described the fraud as a case of operational risk arising out of delinquent behaviour by the bank’s employees.
“The fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls,” the central bank said.
RBI said it was assessing the situation and would take appropriate supervisory action.
“RBI has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action,” it said. RBI denied directing PNB to pay other banks.
“There have been reports in the media that in the wake of fraud involving a sum of $1.77 billion that has surfaced in Punjab National Bank (PNB), the Reserve Bank of India (RBI) has directed PNB to meet its commitments under the Letter of Undertaking (LOU) to other banks. RBI denies having given any such instructions,” the statement added.
On Wednesday, the second largest lender of the country informed the stock exchanges about detection of $1.77 billion (₹11,500 crore) unauthorised transactions where fraudulent letters of undertaking (LoUs) were issued from a branch in Mumbai to secure overseas credit. The PNB stocks tanked 22.3% since the scam broke.
