PNB asks for info from peer banks, no condition yet on LOUs payout: Report
As the investigation process normally stretches long, the bankers fear they will be compelled to declare the portion of their exposure in the LoU fraud as non-performing.business Updated: Mar 15, 2018 22:26 IST
Punjab National Bank has asked for certain information from peer banks but no condition has been set for payouts related to LoUs in the Rs 12,968 crore fraud allegedly committed by Nirav Modi and his firms, sources said.
Bankers aware of the development said as the matter is under investigation by the CBI, no final call on LoU payouts can be taken as of now.
“PNB has been calling for certain information from other banks to ascertain if there were any deficiency or laxity on the part of those other banks, if they also had some system lacunae or might have compromised on their system, things like that,” a bank official said on the condition of anonymity.
On what has been derived among the banks on the liability of PNB towards other banks to pay against the Letters of Undertakings (LOUs) on the basis of which peer lenders made import credit payments to Nirav Modi and his firms, the official said, “As the investigations are going on, there is no final call on LOUs payouts.”
As the investigation process normally stretches long, the bankers fear they will be compelled to declare the portion of their exposure in the LoU fraud as non-performing.
“Those accounts will have to be declared NPA if our money is not back with us within 90 days,” said another banker.
“If the money doesn’t come back in days, technically I will have to make it as NPA in my books. This quarter (ending March 31), it looks unlikely to be any pressure. Even if it comes, it will be in the coming quarters,” the official said.
The bankers said both the finance ministry and the Reserve Bank have asked all public sector banks to strengthen their systems. However, there are not any specific directions, they said.
To plug the loopholes, PNB has started the process of urgently integrating the global transaction system -SWIFT- with its core banking solution (CBS) system and initiated other remedial measures with regard to overall audit functions of the bank.
Besides, it is reviewing performance of external auditors.
A new software, Financle 10 version has already been installed and is in the testing phase, PNB said.
“It is a superior system and would enable the bank at mid office and head office to view transactions of all branches through one administration,” PNB said in a communication.
Also, it has implemented a three level authentication with regard to SWIFT authentication and a terminal at head office/zonal office would be installed to monitor transactions immediately, PNB said.
The alleged fraud at PNB could be perpetuated as unscrupulous elements like Modi and Choksi in connivance with a few bank officials managed to bypass the systematic reporting of LOU issuance to the CBS and it was not integrated with the global transactions software SWIFT.
Over two dozen banks, including SBI, Allahabad Bank, Bank of Baroda, Bank of India, Union Bank of India, ICICI Bank have taken a hit in this alleged fraud by making import credit payments to Nirav Modi and firms on the basis of fake LoUs of PNB.