{"id":31202,"date":"2018-10-27T12:31:49","date_gmt":"2018-10-27T07:01:49","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=31202"},"modified":"2018-10-27T12:31:49","modified_gmt":"2018-10-27T07:01:49","slug":"banks-to-knock-at-rbis-door-on-pnb-impasse","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/banks-to-knock-at-rbis-door-on-pnb-impasse\/","title":{"rendered":"Banks to knock at RBI\u2019s door on PNB impasse"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/business\/banks-to-knock-at-rbis-door-on-pnb-impasse\/article22791099.ece\"><b>Banks to knock at RBI\u2019s door on PNB impasse<\/b><\/a><\/p>\n<p><b>Context:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Banks are planning to approach the Reserve Bank of India (RBI) to break the impasse with the fraud-hit Punjab National Bank (PNB), which is declining to pay them the dues till investigations into the <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500-crore LoU scam.<\/span><\/li>\n<\/ul>\n<p><b>Introduction:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">All the banks first tried to convince PNB to honour the commitments.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The banks have decided to approach the central bank through the Indian Banks\u2019 Association (IBA).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Last week, the state-run lender informed the stock exchanges about the detection of $1.77 billion (<\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500 crore)-worth unauthorised transactions where fraudulent letters of undertaking (LoUs) were issued from a branch in Mumbai to secure overseas credit.<\/span><\/li>\n<\/ul>\n<p><b>Supervisory assessment of control system:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">RBI had pointed out to the failure of internal control of PNB as being the main reason for the fraud taking place.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> \u00a0<\/span><span style=\"font-weight: 400;\">RBI is assessing the situation and would take appropriate supervisory action.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The banking regulator had already undertaken a supervisory assessment of control systems in PNB.<\/span><\/li>\n<\/ul>\n<p><b>What has happened?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">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 buyers credit from overseas branches of Indian banks.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Preliminary investigation into the alleged fraudulent transactions worth <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500 crore has revealed a complete breakdown of supervision and auditing mechanism in Punjab National Bank\u2019s Mumbai branch and overseas branches of the other banks concerned.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The transactions remained undetected for almost seven years, despite the fact that the bank conducts internal and external audits on a regular basis.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">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.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">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.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is alleged that bills were also cleared for payments through PNB\u2019s Nostro accounts with other banks that deal in foreign currency<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">As per rules, those availing such a credit facility are required to repay the loan within 90 days of the issuance of an LoU.<\/span><\/li>\n<\/ul>\n<p><b>SWIFT system<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In the PNB case, the accused officials misused the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) system to verify the fraudulently issued LoUs, conforming to the overseas branches of several banks that they could extend foreign exchange credit to the beneficiaries.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The SWIFT system is mainly used for clearing international wire transfers.<\/span><\/li>\n<\/ul>\n<p><b>Accused book under Prevention of Corruption act:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Central Bureau of Investigation has booked one retired and one serving PNB employee so far.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Enforcement Directorate has registered a money laundering case in the matter.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It involves Mumbai-based billionaire diamond merchant Nirav Modi.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Banks to knock at RBI\u2019s door on PNB impasse Context: Banks are planning to approach the Reserve Bank of India (RBI) to break the impasse with the fraud-hit Punjab National Bank (PNB), which is declining to pay them the dues till investigations into the \u20b911,500-crore LoU scam. Introduction: All the banks first tried to convince&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/banks-to-knock-at-rbis-door-on-pnb-impasse\/\">Continue reading <span class=\"screen-reader-text\">Banks to knock at RBI\u2019s door on PNB impasse<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-31202","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704909146},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=31202"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31202\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=31202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=31202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=31202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}