The Big Story:
As experts begin to think about fixing the systemic problems that led to the massive, Rs 11,000-crore scam that a group of companies associated with jeweller Nirav Modi allegedly committed with the connivance of officials from Punjab National Bank, it isn’t quite clear where to begin. This is partly because there are still many unanswered questions about how the scam actually worked.
According to information that has been made public so far, the scam involved officials from within the bank allegedly handing out fake Letters of Understandings on behalf of companies associated with Modi, which allowed him to access massive foreign exchange loans that were completely unsecured. Punjab National Bank claims that instructions were sent to the foreign branches of other banks on SWIFT, an interbank telecommunications system that is trusted almost implicitly, to provide credit to high-profile jewellry companies connected to Modi. Moreover, it claimed that these instructions were not matched against its core banking system, so the management did not come to know that it had sent messages regarding loans to other banks. For a full explanation of how the scam actually worked, read this.
Essentially, this means that Modi managed to get loans from Punjab National Bank via other banks, without PNB knowing that it was loaning him any money. Naturally, these guarantees to the other banks were unsecured since PNB did not even know, beyond a few crooked officials, it was lending money to Modi.
The matter was uncovered when companies connected to Modi came back to PNB and asked for more LoUs after one allegedly crooked official had retired. This time the bank demanded they furnish cash margins to cover the loans, but the companies told the bank that they had previously received LoUs without margins, which is when the bank realised something had gone wrong.
Or at least that is the official story put out by PNB, one that doesn’t quite add up. Here are 10 questions that emerge from what we know so far:
- If the scam began in 2011, how come the other banks, which were actually lending money to the companies based on fake guarantees, did not tip off PNB by simply demanding their cash earlier?
- If the matter has been on for a few years now, how come the SWIFT log and the core banking system did not throw up a mismatch when books were closed for earlier years?
- Why would the companies go back to PNB and demand LoUs, thereby revealing the scam, if they were acting in connivance with a crooked bank official who had retired by then?
- What did Nirav Modi and his companies actually use the money for?
- Where are the auditors in all of this? Audits should have happened on the PNB side, on the side of the other banks that lent to Modi and on the side of his high-profile companies. How did this remain hidden?
- If the basic systemic loophole with no matching between SWIFT and the core banking system exists in the country’s second-largest lender, what is the likelihood that other banks have even more lacunae?
- PNB initially blamed the matter on one junior level officer then made it two, and has eventually suspended 10 people. Considering the sheer scale of the scam, how will it find out how deep this goes?
- PNB has officially claimed that it is likely the scam was carried out with the connivance of other bank officials. This may just be passing the buck, but what are those other banks – and the Reserve Bank of India – going to do about those allegations?
- When was government alerted to the scam? A whistleblower raised questions in 2016, writing to investigation agencies and even the Prime Minister’s Office. How come nothing was done?
- If there was prior indication, did the government do anything to prevent Nirav Modi, and other family members or company officials connected to the alleged scam, from leaving the country?
The Big Scroll
- Explained: How did the alleged Rs 11,000 crore Nirav Modi, Punjab National Bank scam go unnoticed?
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