3. PUNJAB NATIONAL BANK
• PNB is a public sector banking and financial service
organization.
• The bank was founded in the year 1984.
• As of 31st march 2019, the bank has over 110
million customers, 7001 branches and 10,681 ATMs
across 764 cities.
• It is the second largest bank in India.
4. THE PNB SCAM EXPLAINED
• The loopholes in the concept of LOU and SWIFT,
which were predominantly used for FOREX
transactions were utilized by a couple of PNB
employees to con AXIS bank and Allahabad bank to
the tune of 10,000 crores.
• The key accused in the case, Nirav Modi and his
family left India in 2018, a few days before the
scam was exposed.
• This is the largest financial scam in India.
6. • Nirav Modi is a luxury diamond jeweller, who was
ranked 57 in the Forbes list of billionaires.
• He is the founder of Nirav Modi chain of diamond
jewellery retail stores.
• He is the chairman of Firestar international, which
has stores in key markets across the globe.
• Famous branches include the ones at Delhi,
Mumbai, New York, Hong Kong, London and
Macau.
7. LOU and SWIFT
• LOU:
Letter of undertaking is a form, by which a customer can
raise money from another Indian bank's foreign branch in
the form of a short term credit.
• SWIFT:
The Society for World wide Interbank Financial
Telecommunication, legally provides a network to send
and receive information about financial transactions in a
secure, standardized and reliable environment.
8. International loan process
• Nirav Modi is an importer of diamonds.
• Importers prefer to take loans in foreign countries
as interest rates are much lower.
• Nirav Modi approached PNB for buyer's credit.
• Essentially a loan that is taken from an overseas
bank and guaranteed by PNB.
• In order to do this, PNB had to issue a "letter of
undertaking" to an overseas bank.
9. • A LOU basically guarantees an overseas bank that if
it lends money for a specified period to a client
identified by the home bank (PNB in this case), it
will assure that the money will be returned to the
overseas bank.
• An account called NOSTRO is created by the home
bank, to which the overseas bank lends.
10. The Scammer's strategy
• PNB emloyees misused the SWIFT network to
transmit messages to Allahabad bank and Axis bank
on fund requirement.
• Though the SWIFT system was utilized, the
transactions were never recorded in the PNB's core
system making it illegal.
11. The after effects
• The PNB scam was a rude shock for customers,
investors and other financial entities associated
with PNB.
• It sent the financial sector reeling, resulting in
fluctations in stock markets and a general unrest in
investor sentiment.
• The CBI was called in to investigate and a case was
filed against Nirav Modi's family on Feb 30th 2018.
12. Conclusion
The central government removed K.V.Brahmaji Rao and
Sanjiv Sharat from the office of the Executive Director
of PNB.The managerial action expected in such a
situation would be-
1. Taking responsibilty.
2. Disclosing the fraudulent transactions that occured
through SWIFT.
RBI abolished SWIFT transaction post PNB scam.
It has constituted an expert panel to examine banking
operations more closely.
