By Amlan Home Chowdhury
Unbelievable it may sound but the “Economic Powerhouse India”, as dubbed by the current Modi-led government at the Centre, witnessed 25,600 cases of bank frauds totalling Rs. 1.79 billion up to December 21, 2017.
Whether India has become an “Economic Powerhouse” or not yet remains a matter of academic discussion but it certainly has turned a haven for those who want to use fraudulently issued Letters of Understandings (LoU) to rob the public sector banks the way Nirav Modi did to bleed Punjab National Bank (PNB) of Rs. 11,300 crore
Can you imagine this 48-years old celebrity jeweller whose brands were worn by the Hollywood heartthrob Kate Winslet for her red-carpet walk at the 2016 Oscars was issued a robust 500 LoUs to comfortably rob the PNB? No wonder the Union Minister for Electronics and Information-technology Ravi Shankar Prasad divulged in the Parliament that the PSU banks lost Rs. 227.43 billion (Rs 22,743 crore) due to frauds.
The Nirav Modi-PNB scam, however, is the king of scams as the money involved far exceeds the other scams that had been taking place in the last one decade. The most worrisome matter is that this scam has tarnished the image of PNB so much so that its reputation, as second biggest lender bank after the State Bank of India, now is at stake.
The global rating agency Fitch has put PNB in its RWN (Rating Watch Negative) category not before commenting “this fraud raises question on both external and internal risk control and quality management supervision of the bank”.
The Moody’s Investors Service has also placed downgraded PNB’s credit rating. To further hammer PNB’s creditworthiness down, the India Ratings and Research (Ind-Ra) also has downgraded the bank’s overall rating. It is in this backdrop that the CRISIL put PNB’s rating on “Watch.”
Why not? Did not Nirav Modi, his business partners and PNB officials join hands in looting public money? Did the bank officials not know that Modi and his business partners furnished fraudulent LoUs to obtain advances for payments to overseas business suppliers? Now everybody knows they did!
What a shame! A crying shame! In its official website, the PNB takes pride in mentioning that the bank established in 1894 at Lahore (now in Pakistan), grew as a part of Swadeshi Movement and Lala Lajpat Rai, Mahatma Gandhi, Jawaharlal Nehru and Lal Bahadur Shastri had accounts with it.
However, employees had no hesitation to act against India while issuing loans to Nirav on fraudulent LoUs. Practically, they should be booked for high treason. Mind you, economic offences of gigantic dimensions too can be construed as an act of treason. Those PNB officials showed scant respect to the fact that the Jallianwala Bagh Committee maintained its account with the bank. Really, a legacy has been put to shreds.
Just imagine, the fraudulent withdrawals from the PNB had been continuing at least for the last one decade by Nirav Modi. We know that auditing is a continuous process in all banking institutions. But the PNB’s top management remained silent on the facts that the Nirav Modi companies violated all set of rules prescribed for the Foreign Exchange Management Act (FEMA) and also defaulted on repayment schedule of loans taken from the Life Insurance Corporation of India, ICICI Bank and IDBI Bank.
It was only on January 16, 2018, that the PNB suspected fraudulent transactions. Here, a questions crop up. How could PNB’s top management fail to detect the fraud when the dimension was so big? Apparently, this cannot happen unless a section of staff members are involved in it. The tree companies of Nirav Modi – Diamond R US, Solar Exports and Stellar Diamonds – practically took the bank for a ride. On examination, the bank found that several LoUs go back to 2010 and even earlier.
The whole heist created a very big bang globally on January 28, 2018 when the PNB filed a complaint with the CBI. On February 4, 2018, the CBI issued lookout notices against Nirav.
The All India Bank Officers Association (AIBOA) has justifiably questioned how the scam went undetected for so many years? Modi had floated 120 shell companies to commit the fraud. The Enforcement Directorate now is probing 120 shell companies that are allegedly linked to Nirav Modi and Mehul Choksi of the Gitanjali Group.
The PNB, apparently, now is in a rescue mode. It has to regain the trust of the people. After this massive scam, it goes without saying that the bank’s reputation has been tarnished.
Just imagine, it had been rescuing banks since 1939 beginning with the Bhagwan Dass Bank Limited being the first one. If a line is drawn from 1960 till 2003, we find that it amalgamated the Indo-Commercial Bank Limited in 1960, the Universal Bank of India in 1961, acquired the Hindustan Commercial Bank Limited and the New Bank of India in 1993. In 2003, the Nedungadi Bank was taken over by the PNB.
The major fraud earlier taking place in PNB was in 1986 in its London branch. As a result, the RBI required the PNB to transfer its London branch to the State Bank of India.
The Nirav Modi fraud case took place through gross misuse of the SWIFT (Society for Worldwide Interbank Telecommunications) Code system which is the messaging system used by the banks across the world to send information and instructions in an encrypted format through a secure channel.
This happened despite the fact that the RBI had alerted all banks at least thrice since August 2016 on the need to prevent any “Potential malicious use of the SWIFT infrastructure”. Thus SWIFT-norms were totally violated.
Very interestingly, at a time when the the PNB is battling hard to retain its creditworthiness, the main culprit Nirav Modi sent a letter/mail to the bank authority blaming if for “Destroying My Brand.” For all practical purposes, the Nirav Modi “Brand,” owned by Firestar Diamond International Pvt. Ltd, currently stands destroyed. Dark clouds of uncertainty indeed have fallen on his business empire that spans across the globe.
The CBI has already booked Nirav Modi, his brother Nishal and wife Ami and business partner Mehul Chinubhai Choksi (Nirav’s maternal uncle) who were partners or had links with different Nirav-companies including Steller Diamonds, Solar Exports etc.