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In a letter to chiefs of 30 banks, Punjab National Bank (PNB) has alleged that other banks did not follow due diligence and that there could be involvement of employees of these banks as well in the scam. The letter, which said the modus operandi was being shared “strictly for exercising necessary caution in the matter”, was also deeply critical of other banks.
It said a junior level branch official unauthorisedly and fraudulently issued letters of undertakings (LoUs) on behalf of some firms belonging to the Nirav Modi group viz., Solar Exports, Stellar Diamonds, and Diamonds R Us for availing of buyers’ credit from overseas branches of Indian banks. The firms were maintaining only current accounts with the branch and not enjoying any fund or non-fund based limits.
“None of the transactions was routed through the core banking system (CBS), thus avoiding early detection of fraudulent activity.”
Similar modus operandi were used by the same branch official in companies belonging to Gitanjali Gems promoted by Mehul Choksi —Gitanjali Gems, Gili, and Nakshatra — while issuing LoUs/FLCs (foreign letters of credit), the letter said. However, this set of companies enjoyed credit limit with the bank.
“In case of FLCs, it has been found that at the time of issuing FLC for a smaller amount by SWIFT, the transaction was routed through the CBS system but subsequently, amendments were made in these FLCs by substantially enhancing the amount of FLC and transmitted through SWIFT without routing the enhancements through CBS.” “The said official would subsequently convey via SWIFT the acceptance of bills for the full amount of FLC to the overseas negotiating bank,” the letter said.
LoUs are were opened in favour of branches of Indian banks for import of pearls for a period of one year, for which the Reserve Bank of India (RBI) guidelines stipulate a total time period of 90 days from the date of shipment.
“This stipulation was overlooked by overseas branches of Indian banks that are also required to follow the RBI guidelines. There is a clear criminal connivance of group companies of Nirav Modi and Gitanjali Gems with our branch official and also apparently, with officials of overseas branches of Indian banks,” the letter said.
It added: “None of the overseas branches of India based banks has shared with us any document/information made available to them by these Indian companies at the time of availing buyers’ credit from them.”
Subsequently, the buyers’ credit availed against the fraudulent LoU was used either to retire import bills or replenish the maturing buyer’s credit of some other banks.
However, when the official of the bank retired from his service, these companies again approached the branch for availing of LoUs. On being asked to furnish 110 per cent margin, as there was no sanction of any fund or non-fund based limits, the companies insisted they were “undertaking such transactions for the past so many years.”