Page 38 - English Tehelka Issue 5 - March 15, 2018

PNB fraud

Questions arising out of PNB’s

based limit”. In a fund-based limit
like a term loan, the bank pays out dealings with Nirav Modi
money. In non-fund-based limits,
the bank will only pay if someone • Why did the PNB give a guarantee without collateral even
else defaults or an event happens — though the foreign bank lent the money for Modi on the
like a Bank Guarantee or a LC (Let- understanding that PNB will pay back even if Modi fails to pay?
ter of Credit) or an LoU. Meaning, • While the PNB reported it as a 11,000 crore fraud, why did they
the PNB assumed that the foreign file an FIR with the CBI for only 280 crore?
bank was giving a loan directly to • How did a massive credit of 11,000 crore pass muster without
Nirav Modi and that PNB needed the top management being aware of it? The PNB’s nostro
to pay only in case NM defaulted. account with other banks kept getting big credits that added up
So, in the eyes of the PNB it was to 11,000 crore. Why didn’t they reconcile it in the accounting?
always a “non-fund-based” loan. • Even though Letters of Understanding (LoUs) were issued
But this is how a significant part of through the SWIFT — the inter-banking message service —
import financing works. They all channel, why did the orders never show up in the core banking
rollover credit, and they all use LoUs system (CBS) for monitoring? How can you have transactions on
for much higher than they can offer SWIFT outside CBS?
as collateral. • Why didn’t the PNB or the RBI audit the SWIFT trail?
The fraud may be even bigger be- • The PNB says it has “unfunded” exposure of 11,000 crore. But
cause for every 100 that a bank has they haven’t even revealed it in their latest Basel III disclosure:
collateral, they will easily provide The funded exposure to ‘Gems and Jewellery’ is shown at 1860
LoUs for up to six times the amount. crore and unfunded to the same sector at 842 crore.
This is a real problem — that most
public sector banks do not keep
much collateral against non-fund- agement would know. credit. A change in regulation here eration, Krishna Kumar, who is very
based limits given to importing cus- can change the game dramatically vocal has often been raising issues
tomers. So even if a bank has collat- ing it? Think of it — your nostro counts? The SWIFT messages are a Scale of fraud? for every other bank in the system. plaguing the banking system.
eral, it’s nowhere near enough. And account with other banks keeps specific kind of message. Why While the PNB reported it as a Closing the door behind Modi,
then, such unfunded liabilities are getting big credits that add up to wouldn’t the PNB audit the SWIFT 11,000 crore fraud, they filed an FIR Fixing the malady who has already left the country, is
not even reported to the Reserve 11,000 crore and you don’t rec - trail? Reconcile it with the core with the CBI for only 280 crore. All How can you have transactions on probably useless. Invoke their per-
Bank of India! oncile it in the accounting? The banking system. How many of it will now have to be borne by SWIFT outside CBS? The only alter- sonal guarantees, and file cases to
“why is this money even here?” more such skeletons will tumble if the PNB. Whether someone abused native left is to fix it. Why would you attach their personal properties.
Basel Reporting: No Disclosure question should have been asked they do? their SWIFT usage is not relevant, if not reconcile the nostro accounts? After that, file in National Company
The PNB has “unfunded” exposure by someone who audits ac - Data wasn’t entered into the core the PNB’s SWIFT message said they Suspend the auditors and fire top Law Tribunal to make these compa-
of 11,000 crore, they say. But they banking system. LoUs weren’t au- will pay, they have to pay if there management. The General Secre- nies insolvent. Take the hit, and try
don’t even reveal it in their latest thorized. It appears hard to believe, is a default. Think about the fallout. tary of All India PNB Officers Fed- to recover. Find out more such cases
Basel III disclosure: The funded The real problem because the amounts are very large. The problem was that some liabili- where collateral cover is too low.
exposure to ‘Gems and Jewellery’ is Surely someone on the top would ties were not in the system. There Find out if the LoUs or LCs are just
shown at 1860 crore and unfunded is that most public know. The SWIFT system was ille- could be more such LoUs from Closing the getting rolled over or is the custom-
to the same sector at 842 crore. So sector banks do gally used. It is hard to believe that the same branch or others. Other er actually paying back through the
in effect, the PNB didn’t reveal that a bank like the PNB would not audit banks could have such LoUs too. It’s door, while the Indian current account. And if not,
it was funding massive quantities not keep much its SWIFT messages regularly, not imperative to start looking — we prime accused demand more collateral to avoid
of “unfunded, contingent expo- collateral against even its auditors or even the RBI. know that Nirav Modi will not be further spread of the fraud. It is
sure”. The Bank may pretend that it On the face of it, it looks like an isolated case. has already left horrible that our banks have been
did not know because the transac- non-fund-based the ex-employee is being used as Also, the issue was that the lim- the country, this lax and they have been allowed
tions weren’t in the core banking a scapegoat. It’s likely that a lot of its had no collateral behind them. to, with no bankers being investi-
system (CBS). limits given people were in on this thing. And If all banks were told to verify their would probably gated. The rot inside the banks has
Did employees hide it? Was to importing that it generated massive, fat fees non-fund-based limits and demand been ignored and instead industri-
the PNB responsible or was it a for the PNB all these years. Imag- collateral against them (say at least be useless. It’s alists have been the targets of out-
fraud? Can employees be respon- customers. Such ine 11,000 crore worth LoUs being 25 per cent) then the scale would be time to take the rage. It’s time to fix the rot in the
sible? Could they have hidden unfunded liabilities renewed each year — that’s upto absolutely massive. It’s not that this banking system.
the credit and the rolling over 200 crore in fees that was all hit- is happening only with Nirav Modi hit and try various
of LoUs? How does 11,000 are not even ting the PNB’s top line. When you or Mehul Choksi. A very large num- methods of The views expressed are the
crore credit pass muster with - reported to the RBI hit numbers like 11,000 crore, this ber of importers of commodities author’s own.
out top management realiz - is surely something the top man- have been doing this, and rotating recovery letters@tehelka.com

tehelka / 15 march 2018 38 www.tehelka.com tehelka / 15 march 2018 39 www.tehelka.com

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