PNB Scam Pdf – Explained: Punjab National Bank’s $1.8 Billion Fraud – India’s Punjab National Bank (PNB), the second-biggest public sector lender, stunned the country’s financial sector when it announced this week it had discovered fraudulent transactions worth $1.77 billion (about Rs11,400 crore) at a single branch in Mumbai.

  • This is the Biggest Scam in the history of Indian banking System .
  • This scam Come in light at the time of When indian State Run banks Are Hobbled By Rs 10 trillion Bad Loans In their Books .
  • Indian Government recently Gave Rs 88000 Crore Rupees to indian Public Sector Banks Despite bad fiscal Conditions Of Indian Economy.
  • The banking sector also faces higher capital requirements by next year to meet new global banking rules known as Basel III.

PNB Scam Pdf - Explained: Punjab National Bank’s $1.8 Billion Fraud

What We Will Cover In this Article -PNB Scam Pdf – Explained

  • About Punjab national bank ?
  • About Punjab national Scam And Its Background 
  • Who Is Nirav Modi ?
  • What Is Nirav modi Business ?
  • Letter Of Undertaking ?
  • How did the PNB fraud come to light?
  • Who are the people and companies accused of involvement and what have they said?
  • What Is SWIFT Code ?
  • What Is Contingent Liability ?

PNB Scam Pdf – Explained: PNB Scam Pdf – Explained: PNB Fraud ,SWIFT Code,LOU,CBS,Terms

About Punjab national bank ?

  • Punjab National Bank (PNB) is an Indian multinational banking and financial services company.
  • It is a state-owned corporation based in New Delhi, India.
  • The bank was founded in 1894.
  • As of 31 March 2017 the bank has over 80 million customers, 6,937 branches, and 10681 ATMs across 764 cities
  • PNB has a banking subsidiary in the UK (PNB International Bank, with seven branches in the UK), as well as branches in Hong Kong, Kowloon, Dubai, and Kabul.
  • MD & CEO Of Punjab national bank – Sunil Mehta 

About Punjab national Scam And Its Background -PNB Scam Pdf – Explained

  • Nirav Modi and the $1.77-billion PNB fraud Punjab National Bank PNB), the country’s second-largest public sector lender, is now in the middle of a ₹11,400 crore transaction fraud case.
  • On Wednesday morning, PNB informed the Bombay Stock Exchange that it has detected some “fraudulent and unauthorised transactions” in one of its branches in Mumbai to the tune of $1771.69 million (approx).
  • Following the announcement, the share price of the State-owned bank plunged 10%.
  • Meanwhile, the Central Bureau of Investigation (CBI) received two complaints from PNB against billionaire diamantaire Nirav Modi and a jewellery company alleging fraudulent transactions worth about ₹11,400 crore, the Press Trust of India reported
  • This is in addition to the ₹280 crore fraud case that he is already under investigation for, again filed by PNB.

What was the scam?PNB Scam Pdf – Explained: PNB Fraud ,SWIFT Code,LOU,CBS,Terms

  • According to Punjab National Bank’s note, a junior level branch official “unauthorisedly and fraudulently” issued Letters of Undertakings on behalf of companies connected to the Nirav Modi group.
  • These were Solar Exports, Seller Diamonds and Diamonds R Us.
  • The LoUs allowed the companies to get buyer credit – essentially loans meant to be used to buy material that would be imported into India – from foreign branches of other Indian banks.
  • In other words, Nirav Modi’s companies were allegedly able to get loans in foreign currencies, without offering any security.
  • Moreover, the Punjab National Bank note claims that these loans, which are supposed to be used directly to pay for the imported goods, were instead used for other things like paying back other loans taken from other banks.

Who Is Nirav Modi ?-PNB Scam Pdf – Explained

  • Nirav Modi, the billionaire in the middle of this controversy, is a luxury diamond jewellery designer who was ranked #85 in the Forbes list of India’s billionaires in 2017
  • The founder and creative director of the Nirav Modi chain of diamond jewellery retail stores, and is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the globe.
  • His designs have been worn to the Oscars by ‘Hidden Figures’ star Taraji P. Henson and to the Golden Globes by Dakota Johnson, among others. Actor Priyanka Chopra is the brand Ambassador.

NIRAV Modi Biodata

  • Age – 47 years
  • Born – India ,Surat gujarat
  • Education – Wharton Business School Dropout
  • Occupation – diamond And Jewellery
  • Wealth – $ 1.73 Billion

Nirav Modi case: What is LoU, CBS, SWIFT? Know these terms to understand PNB fraud

PNB Scam Pdf – Explained: Punjab National Bank’s $1.8 Billion Fraud

PNB Scam Pdf – Explained: Punjab National Bank’s $1.8 Billion Fraud

What is LoU?

  • Letter of Undertaking is a bank guarantee and is issued for overseas import payments.
  • A bank, while issuing LoUs for a client (here Nirav Modi), agrees to repay the principal and interest on the client’s loan unconditionally.
  • When an LoU is issued it involves an issuing bank, a receiving bank, an importer and a beneficiary entity overseas.
  • PNB officials allegedly used their access to SWIFT messaging system (used for overseas transaction) and verified guarantees given on LoUs without taking necessary sanctions.
  • As a result, overseas branches of many Indian banks gave forex credit.

What is SWIFT?

PNB Scam Pdf - Explained: PNB Fraud ,SWIFT Code,LOU,CBS,Terms

  • When an LoU is issued, the message of credit transfer is conveyed to overseas banks through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
  • This is a significant information as it gives the bank’s consent and guarantee.
  • To issue SWIFT, an official has to log in and fill up confidential information such as the account number and SWIFT code.
  • It generally has three layers of security – a maker, a checker and a verifier within the core banking system before it is issued.

The SWIFT code is 8 or 11 characters,  Example: BBBBUS3MXXX

  • BBBB 4 letters: Institution Code or bank code.
  • US 2 letters: ISO 3166-1 alpha-2 country code
  • 3M 2 letters or digits: location code
  • If the second character is “0”, then it is typically a test BIC as opposed to a BIC used on the live network.
  • If the second character is “1”, then it denotes a passive participant in the SWIFT network
  • If the second character is “2”, then it typically indicates a reverse billing BIC, where the recipient pays for the message as opposed to the more usual mode whereby the sender pays for the message.
  • XXX 3 letters or digits: branch code, optional (‘XXX’ for primary office)

Where an 8-digit code is given, it may be assumed that it refers to the primary office.

What is CBS?

  • CBS refers to Core Banking System where all branches are inter-connected to ensure that the bank customers – regardless of their home branch – are able to operate their account and transact in any of the member branch located anywhere in the world.
  • After the advent of this system, a customer is no more customer of a branch, but s/he becomes customer of bank.
  • All the transactions are updated real-time.
  • So, if you are wondering why the PNB couldn’t detect the fraud earlier, it is because the PNB official did not rout the transactions through CBS, which would have given real-time data on transacted business.

 What is Department of Financial Services?

  • The Department of Financial Services covers Banks, Insurance and Financial Services provided by various government agencies and private corporations.
  • It also covers pension reforms and Industrial Finance and Micro, Small and Medium Enterprise. It started the Pradhan Mantri Jan Dhan Yojana.

10 questions that emerge from the massive Punjab National Bank-Nirav Modi scam

  1. If the scam began in 2011, how come the other banks, which were actually lending money to the companies based on fake guarantees, did not tip off PNB by simply demanding their cash earlier?
  2. If the matter has been on for a few years now, how come the SWIFT log and the core banking system did not throw up a mismatch when books were closed for earlier years?
  3. Why would the companies go back to PNB and demand LoUs, thereby revealing the scam, if they were acting in connivance with a crooked bank official who had retired by then?
  4. What did Nirav Modi and his companies actually use the money for?
  5. Where are the auditors in all of this? Audits should have happened on the PNB side, on the side of the other banks that lent to Modi and on the side of his high-profile companies. How did this remain hidden?
  6. If the basic systemic loophole with no matching between SWIFT and the core banking system exists in the country’s second-largest lender, what is the likelihood that other banks have even more lacunae?
  7. PNB initially blamed the matter on one junior level officer then made it two, and has eventually suspended 10 people. Considering the sheer scale of the scam, how will it find out how deep this goes?
  8. PNB has officially claimed that it is likely the scam was carried out with the connivance of other bank officials. This may just be passing the buck, but what are those other banks – and the Reserve Bank of India – going to do about those allegations?
  9. When was government alerted to the scam? A whistleblower raised questions in 2016, writing to investigation agencies and even the Prime Minister’s Office. How come nothing was done?
  10. If there was prior indication, did the government do anything to prevent Nirav Modi, and other family members or company officials connected to the alleged scam, from leaving the country?

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