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PNB Fraud Case: 11400 Cr. Scam by Nirav Modi

PNB Fraud Case: 11400 Cr. Scam by Nirav Modi
PNB Fraud Case: 11400 Cr. Scam by Nirav Modi

Billionaire Jeweler Nivav Modi is recently found indulged in a Rs. 11, 400 crore transaction fraud case in Punjab National Bank (PNB). PNB, which is one of the largest Public Sector Bank of India, informed Bombay Stock Exchange (BSE) about an unauthorized and fraudulent transaction of approximately Rs. $ 1771.69 million. CBI has also received two more complaints from PNB against Nirav Modi and his Jwellery Company Gitanjali Gems. Modi, who ranked 85 in the Forbes list of India’s billionaire in 2017, is already under investigation for a Rs. 280 Crore fraud case apart from the case filed by PNB.

Who is Nirav Modi –
He is a luxury diamond jewellery designer who created the Nirav Modi chain of diamond jewellery retail stores. He is the chairman of Firestar International which has stores in the key markets across the world. His designs are very popular amongst the celebrities of Bollywood and Hollywood. Indian Actress Priyanka Chopra is the Brand Ambassador of his company.

How it happens –
PNB has detected some messages regarding fraudulent and authorized transactions in a statement issued to the Stock Exchange to the stock Exchange. After that, the Bank has complained regarding it to the CBI. According to the complaint, the fraudulent issuance of Letter of Undertakings (LOU) was found in the Mid Corporate branch in Mumbai.

What is happened –
Solar Exports, Diamond R US, and Stellar Diamonds are a set of partnership firm. Nirav Modi, his wife Ami Modi, brother Nishal Modi and Mehul Chinubhai Chokshi are the owners of this partnership firm. The firm approached the PNB with a set of import documents and made a request to pay the suppliers of aboard. 

There was no transaction limit in the name of the firms. Due to this reason, the branch officials requested the firms to furnish the cash margin of 110% to issue the LOU for raising the Buyer’s credit. The firm denied to do so and demanded that they used to get facility in the past.

Two PNB Employees i.e. Former Deputy of PNB Manager Shetty and Manoj Karat are identified as “Single Window Operators”. They have issued LOUs in an unauthorized way without following prescribed rules and approvals. They also transmitted SWIFT instruction to the foreign branches to raise Buyer’s Credit without making entries to the Banking System (which acts as Record Keeper) so that the act cannot be detected.

Top Banking Concepts Related to PNB SCAM –
Stock Statement
It is a business statement which provides information on the quantity and value of the transactions related to the stock market.
Mid Corporate Branch
Mid Corporate branches give credit up to Rs. 50 Crore. It is headed by AGM.
SME Branch of Bank
SME branches focus on credit limit up to Rs. 5 crore. It is headed by AGM.
Large Corporate Branch of Bank
The branched have large credit exposure of major corporate clients with credit limit of Rs. 50 crore and more. These branches are headed by DGM.
Letter of Undertaking (LOU)
It is an inter-bank, high provisioning contract to perform the promise or discharge the liability of a third person regarding his default.
Buyer’s Credit
The short-term credit is available to the importer (buyer) from the overseas lenders (banks or other financial institution) for the imported goods.
It stands for Society for Worldwide Interbank Financial Telecommunication code. They are made of 8 or 11 alphanumeric characters codes are most commonly used in international wire transfers. The International Organization of Standardization (IOS) has approved the SWIFT code.
It is a messaging network that is used by the financial institutions for secure transmission of instruction.

Bank Fraud and Its Types –
  • Bank Fraud is a criminal act which occurs when a person uses illegal ways to receive money or assets from a bank or any other financial institution. It is considered to be a “white-collar” crime. It can be of various types. 
  • Bank Impersonation – The individual acts as the financial institution by setting up the fake websites or companies for luring people into depositing funds.
  • Stolen Checks – The Fraudsters may obtain jobs which provide access to mail, i.e. the post office, a tax authority, mailbox stores or corporate payroll company.
  • Forgery – It occurs when a person alters a check by changing the information on the face.
  • Fraudulent loans – An individual takes out a loan knowing that he would immediately file bankruptcy.
  • Internet Fraud – Internet Fraud occurs if someone creates one website to pose as the financial institution for obtaining the money deposited by people fraudulently.
Effect of the PNB Scam on Indian Economy –
  • LIC, who is an investor in PNB, loses Rs 1400 crore in three days. The LIC owns 13.24 % in Union Bank of India, 13.93 % in PNB and 13.17 % in Allahabad Bank. LIC also owns 2.88 per cent in Gitanjali Gems.
  • PNB and other Public Sector Banks have decided to bring PCA (Prompt Corrective Action). The PCA can stop lending temporarily by the bank.
  • Global rating companies Moody’s and Fitch have already raised doubts on the Punjab National Bank’s creditworthiness and credited it under “Rating Watch Negative” with the downgrade possibilities. 
  • The huge Bank Fraud may influence the privatization of Public Sector Banks.
  • PNB has already started to link all processes to core banking solutions to avoid further fraud in future. The government has announced that it would infuse Rs 5,473 crore in Punjab National Bank within 31st March.
Conclusion- This kind of Bank fraud is not new in India. The Kingfisher Owner Vijay Mallya got involved in a 9000 Crore Fraud and illegal money laundering case and left India. After the PNB scam, the harsh reality of Indian Banking Sector is exposed. This kind of illegal activities should be avoided as this is very harmful for our economy. 
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