Parliamentary panel asks FinMin to submit report on PNB scam within a month

"Extremely concerned" over the recent Rs 127 billion fraud at PNB, a parliamentary panel has asked the finance ministry to institute a comprehensive enquiry encompassing systemic elements in the case and submit its report within a month.

Billionaire diamantaire Nirav Modi and his associates in connivance with some officials defrauded Punjab National Bank (PNB) of Rs 127 billion, the country's biggest ever banking fraud.

Standing Committee on Finance headed by senior Congress leader M Veerappa Moily said that it is "extremely concerned about the fraud detected in the PNB, which clearly reflects that a small group of individuals can manipulate such a gigantic bank and compromise it despite such well laid out norms, guidelines, checks and balances".

The Department of Financial Services of the Finance Ministry, it said, should "constitute a comprehensive enquiry into the matter, encompassing both human as well as systemic elements including the role of all concerned officials at each level".

It also directed the department to furnish their finding to the committee within a month of the presentation of this report to Parliament.

The panel also asked the ministry to make efforts to bring out regulations to prevent such happenings in the future and for taking other corrective measures.

"A balance has to be ensured to incentivise performance and build confidence of bankers as that determines the quality of banking," it said.

The committee desires that bankers must be empowered and incentivised and a variable component be linked to their short term and long term performance.

"The government should also instill confidence of customers and investors in credibility of public sector banks (PSBs) and private banks and rub aside the cry to privatise PSBs," it said.

"The time has come to ensure scrutiny of large loans involving the cooperative sector," it added.

Last month, PNB had lodged an FIR with CBI stating that fraudulent LoUs worth Rs 2.8 billion was first issued on January 16 this year. At the time, PNB had said it was digging into records to examine the magnitude of the fraud.

In the complaint, PNB had named three diamond firms -- Diamonds R Us, Solar Exports and Stellar Diamonds -- saying they had approached it on January 16 with a request for buyers' credit for making payment to overseas suppliers. The bank sought 100 per cent cash margins for issuing LoUs for raising buyers' credit, which was contested by the firms saying they had availed of the facility from as early as 2010.

Nirav Modi, his wife Ami, brother Nishal and Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and New York.

In 2015, Bank of Baroda - another public sector bank - had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 60 billion (slightly less than $1 billion at that time).