The document summarizes the Punjab National Bank (PNB) scam involving Nirav Modi. It discusses how former PNB employees fraudulently issued fake Letters of Undertaking (LOUs) without collateral to Nirav Modi's companies, allowing them to take loans from overseas banks. This resulted in losses of over $1.77 billion for PNB. The scam went undetected for years due to failures in auditing, internal controls and oversight from regulatory bodies. An investigation into the scam has been launched and several people have been arrested.

1. Presented By:-
Sambit Kumar Parija- 21DM040
Kaushik Biswal- 21DM039
Sabyasachi Sahu- 21DM038
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2. CONTENTS
1. Introduction on Punjab National Bank (PNB)
2. People Involved in the Scam
3. Who is Nirav Modi?
4. How did PNB scam occur?
5. Effect of scam on PNB and other public sector bank
6. How was the fraud detected?
7. Why the scam couldn’t detected earlier?
8. Who else is responsible for this scam?
9. LOU (Letter of undertaking), SHIFT, NOSTRO
10.Investigation
11.Conclusion
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3. Introduction on Punjab National Bank (PNB)
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 PNB was registered on 19th may 1894, under the Indian Companies Act.
 Punjab National Bank was incorporated bank in the year 1895 in Lahore,
undivided India.
 It was founded by Dyal Singh Manjithia.
 Punjab National Bank is an Indian multinational banking and financial
service company.
Punjab National Bank was nationalized in July 1969 along with 13 other
banks.
 The bank has over 180 million customers and 12248 branches and 13000
ATMs across 764 cities.

4. People Involved in the Scam
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Nirav Modi : Nirav Modi is the owner of the Nirav Modi firm,
Diamond RU.S. ,Stellar Diamond and Solar Exports and the prime
accused in this scam.
Ami Modi : Nirav Modi’s wife.
Neeshal Modi : Nirav Modi’s brother in law.
Mehul Choksi : Mehul Choksi is the owner of Gitanjali Group and the
uncle of Nirav Modi.
PNB Employees : Gokul Nath Shetty (retired deputy manager) , Manoj
Kharat (clerk).

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6. Who is Nirav Modi?
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 Nirav Modi is a luxury diamond jeweller and
designer who was ranked 57 in the Forbes list of
billionaires in 2017.
He is also the founder of the Nirav Modi chain
of diamond jewellery retail stores.
 Nirav Modi is an importer of diamonds.
Basically importers prefer to take loans in foreign
currencies as lowest interest rates.
In this case a loan that is taken from any
overseas bank guaranteed by PNB.

7. How did PNB scam occur?
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❖ Nirav Modi exported rough store from foreign country worth crores of
rupees.
❖ The employees at PNB Brady House branch fraudulently issued LOU for
365 days without making any provisions for collateral and by passing Core
Banking System (CBS) .
❖ Nirav Modi's firm again requested the bank to issue another LOU but the
official refused on ground that the company has to keep collateral with bank but
Modi’s firm argued that no such money was kept on margin for the previous
LOU.

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9. Effect of scam on PNB and other public sector bank
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 Public sector banks will now have to look back on every defaulters,
rupees 50 crores and check whether he was genuinely stressed or just
fooling them.
❖ The stock price of PNB has fallen down from rupees 160 to rupees 95.5
as on 9th march 2018.
❖ RBI has said to PNB to pay all debts to other banks.
❖ The RBI stop banks to issue LOU (letter of undertaking).
❖ Because of this fraud PNB has lost trust of people.

10. How was the fraud detected?
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 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.
❖ A set of partnership firm –Diamond R US ,solar exports and Stellar
Diamonds –approached the bank on January 16 with a set of import documents
and requested buyer’s credit to make payments to overseas suppliers.
❖ Since they had no pre-arranged credit limit, the branch official asked the
companies to put down the full amount as collateral so the bank could issue
LOU to authorize the credit.

11. Why the scam couldn’t detected earlier?
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❖ The failure of the Auditors - Auditors failed to detect any frauds which took
place in PNB branch , Mumbai.
❖ No linkage of SWIFT with CBS - Society for worldwide interbank financial
telecommunication (SWIFT) and core banking system (CBS) was not linked with
each other.
❖ Management Failure - The management system was very weak and couldn't
detect any fraud because the deputy manager of branch himself was involved in
the fraud.
❖ No Rotation of Employees - According to reserve bank of India (RBI)
guidelines, every employees working in banks should be rotated from one
position in every three years but the same was not done in the PNB branch.

12. Who else is responsible for this scam?
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 PNB’s auditors for negligence.
 Overseas banks such as Allahabad bank, Union Bank of India & Axis
Bank for overlooking NOSTRO accounts.
 Reserve Bank of India (RBI) for gross negligence and not enforcing
stricter lending norms.
 Finance Ministry because the government is the bigger shareholder in
public sectors banks.

13. LOU (Letter of undertaking)
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LOU is a bank guarantee that allows the customer to raise money from
another bank's foreign branch in the form of a short-term loan.
SHIFT
 The LOU is issued by PNB to the foreign bank through SWIFT
messages.
 It is a messaging network for securely transmitting instructions for all
financial transactions through a standardised system of codes.
NOSTRO
 Overseas bank remits fund to Nostro account of PNB, backed by the
LOU.
 Banks maintain foreign currency stocks in the form of bank accounts
with their overseas branches; these are called Nostro accounts.

14. Investigation
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 CBI has registered a case against Nirav Modi on january 29.
 PNB registered a case against Nirav Modi, Neeshal Modi, Mehul Choksi on
february 13.
 The bank initially reported a scam of Rs.280 crores but it was later realised to
be Rs.11,400 crores.
 Modi and Choksi left India before the fraud came into light . CBI arrested at
least 13 people, 7 from bank and 6 from Modi’s and Choksi’s company.
 Investigator has also seized their property including jewellery and other
luxury vehicles.

15. Conclusion
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 The impact of frauds on entities like banks, and the economic cost of
frauds can be huge in terms of likely disruption in the working of the
markets, financial institutions, and the payment system.
 Besides, these scams can have a potentially weakening effect on
confidence in the banking system and may damage the integrity and
stability of the economy.

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