The CBI sleuths probing the Rs 11,400 crore Punjab National Bank (PNB) fraud are focusing on the role of officials at overseas branches of other banks in encashing letter of Undertakings (loUs) that billionaire Nirav Modi fraudulently managed from Punjab National Bank.
“The officials of Hong Kong branches of Indian lenders, including Allahabad Bank, State Bank of India (SBI), Union Bank, UCO Bank and Axis Bank are part of the entire fraud which continued for last seven years,” the investigating agencies said.
As per the guidelines, the tenure for the encashment of loUs for the jems and jewellery sector is usually of 90 days and not 365 days — the maturity period of most of the loUs linked with the PNB fraud. “Had someone raised alarm earlier, the quantum of fraud could have been lower,” said investigating agencies.
During investigation, it was also revealed that Nirav Modi and Mehul Choksi’s companies are supposed to pay margin money to the bank for issuing the loU and accordingly, he is granted a credit limit. “But in this case, neither was there a credit limit, nor did he ever give any margin money,” said the investigative agencies.
According to agencies, PNB employees issued fake loUs, on the back of which foreign branches of a few Indian banks - including Axis and Allahabad Bank - gave dollar loans to PNB.
These foreign currency loans were used to fund PNB’s Nostro accounts and from these accounts funds moved to certain overseas parties. A Nostro account is the account the PNB having with an overseas bank. Interestingly, PNB has reportedly blamed the overseas branches of State Bank of India’s Mauritius and Frankfurt branches, Bank of India’s Antwerp branch, Canara Bank’s Bahrain branch, UCO Bank’s Hong Kong branch and the to foreign branches of Union Bank of India, Axis Bank and Allahabad Bank for not raising alarm over fake loUs.
According to the second FIR, total 293 letters of Understanding (loU) and 224 foreign letters of credit were issued by during 2017 and 2018. The CBI has stated as how how overseas branches of domestic banks which includes Frankfurt and Mauritius branches of the State Bank of India, Bahrain branch of Canara Bank, Antwerp (in Belgium) branch of Bank of India, and Hong Kong branches of Axis Bank and Allahabad Bank became part of the fraud.
The modus operandi adopted by the accused bank officials was that they deliberately omitted in making entries of the letter of Undertakings purportedly issued on behalf of the accused companies in the core banking solution system of the banks to avoid detection. “The funds raised through the said loUs were meant to be used for payment of import bills of the accused companies whereas it was dishonestly and fraudulently utilised for discharging the earlier liabilities on account of Buyers credit facility allowed by the overseas branches of Indian banks”, the CBI FIR said.
The modus operandi with regard to this foreign letter of credit was that they were opened initially for smaller amounts by creating purportedly entries in core banking solutions system and sending the relevant foreign letter of credits through SWIFT messages.
The accused bank officials pursuant to the conspiracy unauthorisedly and dishonestly enhanced the values of the foreign letter of credits manifold and issued amendments to the said foreign letter of credit through SWIFT messages without recording the same in core banking solutions system whereby the overseas branches of the Indian banks discounted the bills submitted by the beneficiary suppliers.