Punjab National

Bank
Scam
FENY MIRIUM JACOB
KAVYA ELIZEBETH JOHNY
ARJUN
JORGE
Punjab National Bank
• Punjab National Bank (PNB) is an Indian multinational banking and
financial services company.
• It is a state-owned corporation based in New Delhi, India.
• The bank was founded in 1894.
• As of 31 March 2017 the bank has over 80 million customers, 6,937
branches, and 10681 ATMs across 764 cities
• PNB has a banking subsidiary in the UK (PNB International Bank, with
seven branches in the UK), as well as branches in Hong Kong, Kowloon ,
Dubai, and Kabul.
• MD & CEO Of Punjab national bank – Sunil Mehta
 THE SCAM

• India’s biggest banking fraud has been detected in India’s second largest public sector bank Punjab
National Bank. The fraud size is estimated at around $1.77 billion ( Rs 11,400 crore) .
• The banking fraud at Punjab National Bank was detected at its Brady house branch in Mumbai.
• Following the announcement, the share price of the State-owned bank plunged by 10%.

Who is Nirav Modi?

• Nirav Modi, the billionaire in the middle of this controversy, is a luxury diamond
jewellery designer who was ranked 85th in the Forbes list of India’s billionaires in 2017.

• He is the founder and creative director of the Nirav Modi chain of diamond jewellery
retail stores, and is the chairman of Fire international the parent of the Nirav modi chain,
which has stores in key markets across the globe.
BASIC CONCEPTS

➢ LOU/LOC
Letter of Undertaking is a document or instrument issued by a bank on behalf of a buyer
guaranteeing a payment to the seller .
It’s a bank guarantee which is issued for overseas import payments.
A bank, while issuing Lou's for a client agrees to repay the principal and interest on the client's
loan unconditionally.

➢ CBS( Core banking solutions )

Its a software for recording transactions, storing customer information, calculating interest and
completing the process of passing entries in a single database.

SWIFT
• Digital platform for communication , the message will be transferred from one international
bank to another international bank.
• When an Lou is issued, the message of credit transfer is conveyed to overseas banks through
the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
 What was the ideal situation ? What actually happened ?

BANK B
BANK A SWIFT OVERSEAS BANK A SWIFT BANK B
BRANCH PNB OVERSEAS BANK
ISSUER NOSTRO NOSTRO
ACCOUNT RECEIVING BANK ACCOUNT

LOANS LOANS
CREDIT LIMIT/ ALLAHABAD BANK - ₹2000-2200 CR
CREDIT LIMIT/ UNION BANK - ₹2000-2300 CR
COLLATERAL/ LoC/LoU COLLATERAL/ LoC/LoU
CREDIT AXIS BANK -₹2000 CR
CREDIT STATE BANKOF INDIA - ₹960 CR
MARGIN MARGIN

PAYMENT PAYMENT
INDIAN INDIAN COMPANIES
FOREIGN DIAMOND R US, FOREIGN
COMPANY X
COMPANY Y SOLAR EXPORTS & COMPANY Y
GOODS GOODS
STELLAR DIAMONDS
How did the PNB fraud come to light?
• A set of partnership firms (NIRAV MODI’S COMPANIES): Diamond R US, Solar Export , Stellar
Diamonds approached the bank on January 16 with a set of import documents and requested for buyers
credit to make to payment to overseas suppliers.
• The branch officials requested the firms to furnish 110% cash margin for issuing the LOU for raising the
buyer’s credit.
• At that time, the firms contested that they have been availing this facility in the past , but the branch
records did not include this.
• After then, the bank officials discovered that two of its employees had fraudulently issued LOUs in the
past without following prescribed procedures and approvals.
• The employee had then transmitted SWIFT instructions to the overseas branches of Indian banks for
raising Buyer’s credit without making entries in Banking system to avoid detection.
• Central Bureau of Investigation (CBI) received two complaints from Punjab National Bank (PNB)
against Neerav Modi his brother Neeshal and uncle Mehul Choksi . Also the bank suspended 10 officials
in connection with the case and referred the matter to the CBI on 14 February 2018.
• Officials said Modi and his family fled India in the first week of January, days before the first complaint
was filed.