How did system allow PNB fraud, asks CVC

Summons RBI, Ministry, bank officials for review of regulatory mechanisms

Published - February 16, 2018 11:37 pm IST - MUMBAI

Rags and riches: A Nirav Modi luxury diamond jewellery billboard in New Delhi.

Rags and riches: A Nirav Modi luxury diamond jewellery billboard in New Delhi.

The Central Vigilance Commission (CVC), India’s apex body for checking corruption in the government, has summoned senior officials from the Reserve Bank of India, the Finance Ministry, along with the Chief Vigilance Officer of Punjab National Bank (PNB), early next week to assess how the ₹11,500 crore fraud reported on Wednesday by the government-owned PNB, slipped past all the in-built checks and balances in the banking system.

An official aware of the development said the CVC would like to ascertain if there is a systemic issue that needs to be corrected, as it isn’t convinced by the bank’s claims that junior employees colluded with the fugitive diamond merchant Nirav Modi and other banks were to blame for not carrying out due diligence on the LoUs.

Three-level audit

“Banks are audited at three levels — apart from an internal audit, there is an external auditor and a statutory audit undertaken by the RBI. The CVC is keen to understand how none of these audits picked up a red flag on the letters of undertaking that seem to have been issued bypassing the system,” said the official. Even as the CBI and the Enforcement Directorate conducted searches on Mr. Modi’s firms and his associates across the country on Friday, the External Affairs Ministry suspended his passports along with that of his relative Mehul Choksi.

The Ministry said it would revoke their passports if they failed to respond to the notice of suspension within one week.

A fresh case has been registered by the CBI against three Gitanjali group companies of Mr. Choksi, Mr. Modi’s uncle, for causing an alleged ₹4,887 crore loss to the Punjab National Bank. Quoting the FIR, an agency official on Friday said the transactions currently under scrutiny took place in 2017-18.

A highly placed government official said the Income Tax Department has also initiated action against Mr. Modi under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Income Tax Act of 2015. “The I-T department has invoked provisions that allow it to provisionally attach properties of the assessee and 29 properties belonging to Mr. Modi, his wife and their group companies,” the official said.

Meanwhile, the RBI broke its silence on the fraud and blamed internal control failures for PNB’s woes in a statement on Friday, terming the incident as a ‘case of operational risk’ due to ‘delinquent behaviour’ by one or more employees.

“Searches are being conducted at a total of 32 locations in cities across five States, including Mumbai, Pune, Surat, Jaipur, Hyderabad and Coimbatore. These locations include offices and residences of the accused, and our teams are seizing large amounts of documents pertaining to the offence,” a CBI officer said.

Meanwhile, the ED on Friday conducted searches at 35 locations across 11 States as part of its investigations into the money laundering aspects of the earlier FIR registered by the CBI on January 31 this year.

( With Devesh Pandey, Gautam Mengle and Manojit Saha )

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