Presented by,Rubee gupta

M.Sc. MathematicsCredit officer

CAIIBKYC/AML

BCSBI

Email id- rubi.studyiq@gmail.com

#Full media report

Nirav Modi and the $1.77-billion PNB fraudPunjab National Bank (PNB), the country'ssecond-largest public sector lender, is nowin the middle of a ₹11,400 croretransaction fraud case.

On Wednesday morning, PNB informedthe Bombay Stock Exchange that it hasdetected some "fraudulent andunauthorised transactions" in one of itsbranches in Mumbai to the tune of$1771.69 million (approx). Following the announcement, the shareprice of the State-owned bank plunged10%.

Meanwhile, the Central Bureau ofInvestigation (CBI) received two complaintsfrom PNB against billionaire diamantaireNirav Modi and a jewellery companyalleging fraudulent transactions worthabout ₹11,400 crore, the Press Trust ofIndia reportedThis is in addition to the ₹280 crore fraudcase that he is already under investigationfor, again filed by PNB.

Who is Nirav Modi?

Nirav Modi, the billionaire in the middle of

this controversy, is a luxury diamondjewellery designer who was ranked #85 inthe Forbes list of India's billionaires in2017

He is the founder and creative director ofthe Nirav Modi chain of diamond jewelleryretail stores, and is the Chairman ofFirestar International, the parent of theNirav Modi chain, which has stores in keymarkets across the globe.

His designs have been worn to the Oscarsby 'Hidden Figures' star Taraji P. Hensonand to the Golden Globes by DakotaJohnson, among others. Actor PriyankaChopra is the brand ambassador.

The Modus Operandi??

In a statement issued to stock exchanges

on Wednesday, PNB said that ithas detected some “fraudulent andunauthorised transactions (messages)”

****A stock statement is a businessstatement that provides information on thevalue and quantity of stock relatedtransactions. It details opening and closingbalances for transacted items as well.

According to the complaint filed by PNBwith the CBI on January 28, the fraudulentissuance of Letters of Undertakings (LOU)was detected at the Mid Corporate Branch,Brady House in Mumbai.

What are major the differences betweenan SME, mid-corporate and largecorporate bank branch?

SME branches focus on credit limit upto₹5croreMid Corporate branches give credit upto₹50croreLarge Corporate branches have largecredit exposure of major corporate clientswith credit limit of ₹50crore and more.

SME and Mid Corporate branches areheaded by AGM, while Large Corporate branches areheaded by DGM and above, depending onBank business.

Letter Of Undertaking??

A contract to perform the promise, ordischarge the liability, of a third person incase of his defaultInter-BankHigh ProvisioningHigh Charges to Customer Buyer credit is a short term credit available toan importer (buyer) from overseas lenderssuch as banks and other financialinstitution for goods they are importing

A set of partnership firms -- Diamond R US,Solar Exports and Stellar Diamonds --approached the bank on January 16 with aset of import documents and requested forBuyer's Credit to make payments tooverseas suppliers.The firms have Nirav Modi, his brotherNishal Modi, Mr. Nirav's wife Ami NiravModi, and Mehul Chinubhai Chokshi aspartners.

Buyers Credit is, typically, a short-termloan facility extended to an importer by abank to finance goods and services. It is a common mode of transaction ininternational trade where a bank extendscredit to the importer and a financeagency based in the exporter's countryguarantees the loan.

As there was no sanctioned limit in thename of the firms, the branch officialsrequested the firms to furnish 110% cashmargin for issuing the LOU for raising theBuyer's Credit. At this, the firms contested that they havebeen availing this facility in the past; butthe branch records do not corroborate this.

On digging further, the bank officialsdiscovered that two of its employees hadfraudulently issued LOUs in the past withoutfollowing prescribed procedures andapprovals.The employees had then transmitted SWIFTinstructions to the overseas branches ofIndian banks for raising Buyer's Creditwithout making entries in banking systemto avoid detection.

SWIFT code??

Society for Worldwide Interbank FinancialTelecommunication code. An internationally-recognized identification code for banksaround the world,SWIFT codes are most commonly used forinternational wire transfers and arecomprised of 8 or 11 alphanumericcharacters,The International Organization ofStandardization (IOS) was the authoritativebody that approved the creation of SWIFTcodes.

The complaint also said that the funds soraised for the payment of the Import Billshave not been utilised for such purposes inmany cases.As per the FIR, five of the SWIFT messages(SWIFT is a messaging network used byfinancial institutions to securely transmitinstruction) were issued to Allahabad Bankin Hong Kong and three to Axis Bank inHong Kong.

What will happen now?

One of the worrying aspects of the scam isthat in its statement, PNB says that basedon the fraudulent transactions, other banksappear to have advanced money to thecustomers abroad. It goes on to add that these transactionsare contingent in nature and any liabilityarising out of these on the bank will have tobe decided based on the law andgenuineness of underlying transactions.

What is a 'Contingent Liability'

A contingent liability is a potential liabilitythat may occur, depending on the outcomeof an uncertain future event.A contingent liability is recorded in theaccounting records if the contingency isprobable and the amount of the liabilitycan be reasonably estimated.If both of these conditions are not met,the liability may be disclosed in a footnoteto the financial statements or not reportedat all.

Meanwhile, Joint Secretary in Departmentof Financial Services Lok Rajan said “Idon’t think this is out of control or too big aworry at this point. That is my broad sense.”

Department of Financial Services??

The Department of Financial Servicescovers Banks, Insurance and FinancialServices provided by various governmentagencies and private corporations. It also covers pension reforms andIndustrial Finance and Micro, Small andMedium Enterprise. It started the PradhanMantri Jan Dhan Yojana.

PFRDA, Pension Fund Regulatory andDevelopment Authority (PFRDA) is astatutory body which also works underthis department.Rajiv Kumar is the current Secretary ofthis department.

However, the ₹11,400 crore scam comes ata time when the Central government isattempting to provide a breather to ailingPSBs, having announced a ₹2.11 lakh crorecapital infusion to the sector in October2017.For this year, PNB will receive Rs 5,473crore as capital infusion from thegovernment through a mix ofrecapitalisation bonds and direct infusion.

As of now, as Reuters(An internationalnews agency founded in London in 1851by Paul Julius Reuter (1816–99)) opined,the only good that could come out of theaffair would be some fresh considerationto implementing better practices in publicsector banking.

THANK YOU!!