PNB warns peers about LoU fraud

PNB warns peers about LoU fraud

Context:

• Reeling from a ₹11,500-crore fraud, Punjab National Bank reached out to alert other lenders to the perpetrators’ modus operandi, while at the same time apportioning a share of the blame to its competitors’ overseas branches.

What has happened?

• Recently, PNB found that the SWIFT system had been misused by a junior-level branch officials, who had fraudulently issued letters of undertaking (LoUs) on behalf of some companies for availing buyer’s credit from overseas branches of Indian banks.
• The SWIFT network and identification codes are most commonly used for international wire transfers.
• In one instance, LoUs were opened in favour of overseas branches of Indian banks for import of pearls for a period of one year, for which as per RBI norms, the total time period allowed is 90 days from the date of shipment.