In 2013, a government nominee director on the Allahabad Bank board wrote a letter to the RBI and the secretary of the financial services department about the PNB scam but the UPA government took no action against Nirav Modi and Mehul Choksi
New Delhi: India's biggest bank fraud — the Punjab National Bank (PNB) scam — took root in 2011 when Manmohan Singh was leading the UPA government at the Centre. Interestingly, the PNB general manager raised the issue in January 2018, almost seven years after it started.
In seven years, the PNB, along with other banks, was giving letters of undertaking (LOUs) to Nirav Modi and Mehul Choksi's company. It helped Modi and Choksi get credit from Indian banks having overseas branches like Allahabad Bank, Indian Bank, Axis Bank, HDFC Bank and other.
According to a letter written by the PNB general manager on February 12, 2018, which was first sent to at least a dozen banks, "It was found through the SWIFT trail that one unauthorised junior-level official fraudulently issued letters of undertaking (LoUs) on behalf of some companies belonging to the Nirav Modi Group viz Solar Exporters and Stellar Diamonds, and diamonds were being used for availing credit from overseas branches of Indian banks."
Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global financial messaging service used to transfer millions of dollars internationally, and was primarily used to bypass the core banking system (CBS) which processes daily banking transactions.
SWIFT messages that are used to raise overseas credit were not immediately available in PNB’s FINACLE software system and hence there would be no detection.
Banks give LoUs to other banks as a security to meet liabilities on behalf of a customer. LoUs are similar to a letter of credit or guarantee. According to data, LOUs were issued from overseas banks from 2011 to 2017.
Various nominee directors of banks raised the issue but no action was taken against Nirav Modi. In 2013, Dinesh Dubey, a former government nominee director on the Allahabad Bank board, claimed that he had opposed the proposal of loans and presented a dissenting note arguing that Gitanjali Gems should repay the old loan before its current loan application was cleared.
But the Allahabad Bank board didn't take any action. According to reports, Dubey also wrote a letter to the Reserve Bank of India and the secretary of the financial services department in the ministry of finance about this scam but the UPA government took no action against Nirav Modi.
Instead, then Congress vice president Rahul Gandhi met Nirav Modi in 2013, raising serious questions on the UPA government's intentions.
In March 2018, defence minister Nirmala Sitharaman had also cited the example of Allahabad Bank director raising objections to financial restructuring of Gitanjali Gems.
Central agencies like the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) are probing a money-laundering angle in the Rs 11,400 crore bank fraud case involving Nirav Modi and his family, which includes his maternal uncle Choksi. According to an FIR filed by the CBI, 143 LOUs mainly issued from 2011 to 2016 were fraudulently given to Nirav Modi's company.
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