PNB fraud: CBI names 2 EDs, ex-CEO Usha Ananthasubramanian in charge sheet

Central Bureau of Investigation (CBI) found their involvement in the Rs 140 billion fraud related to group of companies belonging to Nirav Modi and Mehul Choksi

The Union government cracked the whip on three top former and incumbent Punjab National Bank (PNB) executives after the Central Bureau of Investigation (CBI) named them in its charge sheet in the Rs 65-billion fraud related to group of companies belonging to Nirav Modi.

While the government directed Allahabad Bank to “divest all the powers” of its managing director and chief executive officer Usha Ananthasubramanian, who was previously heading PNB, two executive directors at PNB — Sanjiv Sharan and K V Brahmaji Rao — have been removed from the board, Department of Financial Services (DFS) Secretary Rajiv Kumar said.

“This is a clear message that we have to be responsible for what we do. We will only take action when there is substantial proof. If there is deviation from clean banking and there is an issue of integrity, we will take strong action,” Kumar said.

Ananthasubramanian was MD and CEO of PNB between August 2015 and May 2017 and served as ED at the bank between July 2013 and November 2013. Allahabad Bank will hold a board meeting to pass the resolution on Tuesday.

The CBI has not named any other board-level executive of public sector banks in the case so far, but sources said the roles of other PNB CEOs and a few officials of the Reserve Bank of India  were being investigated.

The agency will file a supplementary charge sheet on May 18, they said.

In January, PNB had reported the fraud related to letters of undertaking (LoUs) availed “fraudulently” by firms belonging to Nirav and Mehul Choksi. 

The CBI has filed three separate cases and the total fraud in the Nirav Modi case — perpetrated by misusing SWIFT (Society for Worldwide Inter-bank Financial Telecommuni-cations) systems — has been put at Rs 64.98 billion. The RBI has since then discontinued LoUs as a credit facility instrument. An LoU was a guarantee given by a bank to a foreign branch of an Indian bank to grant short-term credit to firms. 

“Funds were siphoned off to purported overseas supplier firms that were set up and controlled by Nirav and associates,” the CBI said in the 7,500-page charge sheet. Proceeds of buyers’ credit were diverted to pay off outstanding liabilities of firms related to Nirav. 

The CBI said PNB’s top officials, including Ananthasubra-maniam, Rao and Sharan, did not implement the circular and action notices issued by the RBI in 2016 on safeguarding SWIFT operations. Reconciliation of SWIFT messages was not done despite repeated circulars and the top bank officials "misrepresented the factual position on LoUs" to the RBI, the CBI noted. The officials also failed to prevent the fraud despite being aware of its modus operandi, according to the CBI.

Nirav’s companies, in collusion with bank officials, had allegedly exploited a loophole in the system, as PNB’s core banking system was not integrated with SWIFT. As a result of which, the scam went undetected since 2011.

The CBI alleged that Ananthasubramaniam was aware about a similar LoU fraud that took place at the Chandigarh branch of Indian Overseas Bank in 2016, where credits were issued by PNB's Dubai branch. As a follow-up, the RBI had written to PNB, asking whether such fraud took place in PNB and issued fresh guidelines to prevent the LoU frauds. In its response, PNB general manager Nehal Ahad (also named in the charge sheet), as instructed by Ananthasubramaniam, told RBI that no such fraud had come to the bank’s notice, sources said. PNB did not implement the RBI's fresh guidelines in its entirety.

The modus operandi in the Nirav Modi case was also similar to the Indian Overseas Bank's case. 

Ananthasubramaniam was questioned by the CBI on February 27 for several hours. 

The charge sheet, submitted in Mumbai special court of CBI, has named 25 accused. Of them, 19 have already been arrested by the agency. 

CBI has also charged Vipul Ambani, president, finance, Firestar International; Kavita Mankikar, executive assistant and authorised signatory of three firms of Nirav; and Arjun Patil, senior executive, Firestar Group. Sources said that Ambani was in the know of illegality aspect and was hiding the documents. Investigation revealed that unsecured loans of Rs 17 billion had been taken by Nirav’s three companies each and never reflected in audit reports.

Before initiating action, under the Section 8 of the Nationalised Banks Scheme 1970, against the three bank executives, the government had issued a show cause notice to them almost 10 days back. “After it was confirmed that there is a substantiate problem, we initiated the action immediately,” Kumar said.

Asked why no action was taken against other chief executives of PNB, Kumar said: “We will not take any action on rumours… The moment I have definite information either from the regulator (RBI) or the investigators (in other cases), the government will not hesitate in taking actions.”

More action against executives involved in various fraud cases is expected soon, as the DFS has written to the CBI seeking its opinion on whether its first information report (FIR) in the Rs 6 billion IDBI Bank fraud case warrants an action against the present and past bank officials who were allegedly involved.

In its FIR filed last month, the CBI had named 15 senior executives, including Kishor Kharat, MD and CEO of Indian Bank, and Melwyn Rego, MD and CEO of Syndicate Bank. Kharat was MD and CEO of IDBI Bank between August 2015 and March 2017. Rego, who also served as the chief of Bank of India before heading Syndicate Bank, had served as deputy MD of IDBI Bank till August 2015. According to CBI, former Aircel promoter C Sivasankaran’s firms had allegedly defaulted on loans worth Rs 6 billion from IDBI Bank. Sivasankaran is also an accused in the IDBI case.

The process of replacing bank executives on the boards of public sector banks has been initiated as the government has written to the Banks Board Bureau to convene a meeting soon. Kumar said that the problems related to “big non-performing assets” is not spread out across all the branches but is confined to corporate branches and assured that the “worst is over”. “Only clean banking can take place now,” Kumar said.