Eyes wide shut – $1.8bn Indian bank fraud went unnoticed
19 Feb 2018

The Punjab National Bank branch in south Mumbai sits just down the road from both the Bombay Stock Exchange and the Reserve Bank of India, at a physical centre of one of the world’s fastest growing major economies.

The branch, clad in a stately colonial edifice, is now also at the heart of a fraud case linked to billionaire jeweller Nirav Modi that has shaken confidence in a state banking sector that accounts for some 70 percent of India’s banking assets.

It was here, according to accounts from Punjab National Bank executives and government investigators, that a lone middle-aged manager, later aided by his young subordinate, engineered fraudulent transactions totalling about $1.8 billion from 2011 to 2017.

The bank says it is still investigating how they were able to do so and go undetected for so long. The accounts given by current and former executives who spoke to Reuters suggest an answer as simple as it is alarming: no one was paying attention.

The still unravelling story of how the fraud happened – which includes the alleged misuse of the SWIFT interbank messaging system and incomplete ledger entries – points to a breakdown in checks and balances, and standard banking practices, they said.

The apparent failure of anyone to notice the largest fraud in Indian banking history until this January reveals a “rot” in the state financial sector that goes beyond one lender, said Santosh Trivedi, who spent nearly four decades at Punjab National Bank before retiring in 2016 as a senior manager of audit and inspection in the New Delhi head office.

“Unless this rot is controlled at this stage, to the satisfaction of the international community, it is dangerous for the Indian system,” Trivedi said.

JEWELLER TO THE STARS

Last month, Punjab National Bank, known as PNB, filed an initial criminal complaint with the country’s Central Bureau of Investigation (CBI) accusing celebrity jeweller Nirav Modi and others of defrauding the bank and causing it a loss of 2.8 billion Indian rupees (more than £30.6 million).

The allegations against a man whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson generated a flurry of coverage across India’s TV screens and newspapers.

Modi has not publicly commented on the case. He and his family left the country in earlier January, according to Indian officials, and a call on Sunday to a corporate spokesperson who has handled media for Modi in the past went unanswered.

– By Krishna N. Das, Aditya Kalra, Devidutta Tripathy, Tom Lasseter, Reuters, 18 February 2018

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