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    PNB Case Study

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    paresh shiral
    Bank fraud is a criminal act involving illegal means to obtain money or assets from a bank. Recently, Punjab National Bank detected fraudulent transactions of $1.77 billion involving jeweler Nirav Modi. Modi owned jewelry stores globally and was ranked as one of India's billionaires in 2017. An investigation found that two PNB employees had issued fraudulent Letters of Undertaking without following procedures to avoid detection, and had sent SWIFT messages to foreign banks to raise buyer's credit without recording the transactions. The fraud is considered the largest in India's banking history.

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    PNB Case Study

    Uploaded by

    paresh shiral
    362 views6 pages
    Bank fraud is a criminal act involving illegal means to obtain money or assets from a bank. Recently, Punjab National Bank detected fraudulent transactions of $1.77 billion involving jeweler Nirav Modi. Modi owned jewelry stores globally and was ranked as one of India's billionaires in 2017. An investigation found that two PNB employees had issued fraudulent Letters of Undertaking without following procedures to avoid detection, and had sent SWIFT messages to foreign banks to raise buyer's credit without recording the transactions. The fraud is considered the largest in India's banking history.

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    How pnb scam occurred

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    Pnb case study

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    Bank fraud is a criminal act involving illegal means to obtain money or assets from a bank. Recently, Punjab National Bank detected fraudulent transactions of $1.77 billion involving jeweler Nirav Modi. Modi owned jewelry stores globally and was ranked as one of India's billionaires in 2017. An investigation found that two PNB employees had issued fraudulent Letters of Undertaking without following procedures to avoid detection, and had sent SWIFT messages to foreign banks to raise buyer's credit without recording the transactions. The fraud is considered the largest in India's banking history.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    362 views6 pages

    PNB Case Study

    Uploaded by

    paresh shiral
    Bank fraud is a criminal act involving illegal means to obtain money or assets from a bank. Recently, Punjab National Bank detected fraudulent transactions of $1.77 billion involving jeweler Nirav Modi. Modi owned jewelry stores globally and was ranked as one of India's billionaires in 2017. An investigation found that two PNB employees had issued fraudulent Letters of Undertaking without following procedures to avoid detection, and had sent SWIFT messages to foreign banks to raise buyer's credit without recording the transactions. The fraud is considered the largest in India's banking history.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    PNB Fraud Story & Who is Nirav Modi?

    -
    GK Notes for Banking Exams in PDF
    Bank fraud is a criminal act that occurs when a person uses illegal means to receive
    money or assets from a bank or other financial institution. Bank fraud is considered to
    be a white-collar crime. Recently, a major scam in the banking sector sent shock-waves
    across the nation. It was none other than the Nirav Modi PNB Fraud Story. Read the
    article, to know in detail about the types of Bank Frauds, who is Nirav Modi, What
    happened in the PNB Scam along with other facts & ideas. Knowing the details of this
    Bank Fraud Case might help you in your preparation for various Bank Exams.

    Before, you read all the details of the PNB Fraud Story, it is essential that you know the
    various types of Bank Frauds!

    PNB Fraud Story - Types of Bank Fraud

    The major bank frauds are as described below:

    • Bank Impersonation
    - one or more individuals act as a financial institution, often by setting up fake
    companies, or creating websites, in order to lure people into depositing funds.
    • Stolen Checks
    - fraudsters may obtain jobs that provide access to mail, such as the post office,
    mailbox stores, a tax authority, or corporate payroll company.
    • Forgery
    - forgery occurs when a person alters a check by changing the name or some
    other information on the face.

    1|Page
    • Fraudulent loans
    - an individual who takes out a loan, knowing that he will immediately file
    bankruptcy, has committed bank fraud.
    • Internet Fraud
    - as it relates to bank fraud, internet fraud occurs when someone creates a
    website for the purpose of posing as a bank or other financial institution, to
    fraudulently obtain money deposited by other people.

    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 Rs. 11, 400 crore transaction fraud case.

    ⇒ On one morning, PNB informed the BSE (Bombay Stock Exchange) that it has
    detected some “fraudulent and unauthorized 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 Jewellery Company alleging
    fraudulent transactions worth about Rs. 11, 400 crores, the Press Trust of India
    reported. This is in addition to the Rs. 280 crore fraud case that he is already under
    investigation for, again filed by PNB

    ⇒ 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 billionaire in 2017.

    2|Page
    ⇒ He is 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, who has stores in key markets across the globe.

    Nirav Modi - Jewelry Designer?

    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.

    PNB Fraud Story - The Modus Operandi

    • In a statement issued to stock exchanges, PNB said it has detected some


    “fraudulent and unauthorized transactions (messages)”.
    • A stock statement is a business statement that provides information on the
    value and quantity of stock related transactions. It details opening and closing
    balances for transacted items as well.
    • According to the complaint filed by PNB with the CBI on January 28, the
    fraudulent issuance of Letters of Undertakings (LOU) was detected at the
    Mid Corporate branch, Brady House in Mumbai.

    Differences between SME, Mid-Corporate and Large


    Corporate Bank branch?

    • SME branches focus on credit limit up to Rs. 5 crore


    • Mid Corporate branches give credit up to Rs. 50 crore

    3|Page
    • Large Corporate branches have large credit exposure of major corporate clients
    with a credit limit of Rs. 50 crore and more
    • SME and Mid Corporate branches are headed by AGM
    • While, Large Corporate branches are headed by DGM and above, depending on
    Bank business

    What is Letter of Undertaking?

    • It is a contract to perform the promise, or discharge the liability, of a third person


    in case of his default.
    • InterBank
    • High Provisioning
    • High charges to customer
    • Buyer credit is a short-term credit available to an importer (buyer) from overseas
    lenders such as banks and other financial institution for goods they are
    importing.

    PNB Fraud Story - What actually happened?

    ⇒ A set of partnership firms – Diamond R US, Solar Exports and Stellar


    Diamonds – approached the bank on January 16 with a set of import documents and
    requested for Buyer’s Credit to make payments to overseas suppliers. The firms have
    Nirav Modi, his brother Nishal Modi, Mr. Nirav’s wife Ami Nirav Modi, and
    Mehul Chinubhai Chokshi as partners.

    ⇒ As there was no sanctioned limit in the name of the firms, the branch officials
    requested the firms to furnish 110% cash margin for issuing the LOU for raising the
    Buyer’s Credit. At this time the firm contested that they have been availing this facility
    in the past, but the branch records do not corroborate this.

    4|Page
    ⇒ Shetty, a former deputy manager at the Punjab National Bank, and Manoj Kharat,
    have been described as the "single window operators" of the scam that is now being
    billed as the biggest in India's banking history.

    ⇒ On digging further, the bank officials discovered that two of its employees had
    fraudulently issues LOUs in the past without following prescribed procedures and
    approvals. The employees had then transmitted SWIFT instructions to the overseas
    branches of Indian Banks for raising Buyer’s Credit without making entries in the
    banking system to avoid detection.

    PNB Fraud Story - What is SWIFT code?

    ≡ SWIFT stands for Society for Worldwide Interbank Financial


    Telecommunication code. It is an internationally – recognized identification code
    for banks around the world. SWIFT codes are most commonly used for international
    wire transfers and are comprised of 8 or 11 alphanumeric characters. The
    International Organisation of Standardization (IOS) was the authoritative body
    that approved the creation of SWIFT codes

    ≡ The complaint also said that the funds so raised for the payment of the Import Bills
    have not been utilised for such purposes in many cases. As per the FIR, five of the
    SWIFT messages (SWIFT is a messaging network used by financial institutions to
    securely transmit instruction) were issued to Allahabad Bank in Hong Kong and three to
    Axis Bank in Hong Kong

    PNB Fraud Story - What Now?

    ≡ One of the worrying aspects of the scam is that in its statement, PNB says that based
    on the fraudulent transactions, other banks appear to have advanced money to the
    5|Page
    customers abroad. It goes on to add that these transactions are contingent in nature and
    any liability arising out of these on the bank will have to be decided based on the law
    and genuineness of underlying transactions.

    ≡ However, the Rs. 11, 400 crore scam comes at a time when the central government is
    attempting to provide a breather to ailing PSBs, having announced a Rs. 2.11 lakh crore
    capital infusion to the sector in October 2017. For this year PNB will receive Rs. 5, 473
    crore as capital infusion from the government through a mix of recapitalisation bonds
    and direct infusion

    So, these were all the little details of the PNB Fraud Story. Know about more such GK
    Articles on Financial Awareness by clicking on the links below!

    Introduction to Financial Accounting


    Indian Economic Reforms – GK Notes
    Economic Survey India 2018 Explained

    As we all know, practice is the key to success. Therefore, boost your preparation by
    starting your practice now.

    Solve Practice Questions for Free

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    on Testbook Discuss:

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    6|Page

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