Preliminary investigation into the alleged fraudulent transactions worth ₹11,500 crore has revealed a complete breakdown of supervision and auditing mechanism in Punjab National Bank’s Mumbai branch and overseas branches of the other banks concerned.
The transactions remained undetected for almost seven years, despite the fact that the bank conducts internal and external audits on a regular basis.
“Overseas branches of the other banks, which released payments on the request for settlement of import bills, also did not flag the discrepancies for such a long period. Therefore, complicity of the officials concerned in those banks can also not be ruled out at this stage,” said a senior ED official.
The bank has pinned the whole blame on the then Deputy Manager, Gokulnath Shetty, and a low-rank staffer for the fraudulent issuance of Letters of Undertaking (LoU) on behalf of the three firms associated with diamond merchant Nirav Modi and his family members. However, eight more officials have been suspended.
As alleged, Mr. Shetty issued the LoUs without ensuring that the beneficiaries had been sanctioned the necessary credit limit or had deposited adequate cash with the bank as collateral.
Also, the officials did not make any entry about the LoUs in the bank’s central database to evade detection. They, however, allegedly transmitted messages to the overseas branches of other Indian banks to honour the “fake” LoUs for settlement of import bills on the beneficiaries’ behalf.
While LoU remains valid for only three months, the ED has found that in one case the letter with a validity of one year had been issued. This also remained undetected.
At least two Hong Kong-based branches of Allahabad Bank and Axis Bank have been identified as involved so far.
It is alleged that bills were also cleared for payments through PNB’s Nostro accounts with other banks that deal in foreign currency.
As per rules, those availing such a credit facility are required to repay the loan within 90 days of the issuance of an LoU.
However, it is alleged, the accused used to get another LoU issued during the validity period, for an amount that also included the pending sum.
