PNB Scam-Will PNB get its money back from Nirav Modi?

The PNB Scam which is in news from few days is being investigated by two central agencies of India. First is CBI i.e. the Central Bureau of Investigation and second one the Enforcement Directorate; both are investing the country’s biggest loan fraud case.

Nirav Modi, a known Diamond merchandiser has been accused of siphoning off a large amount of fund which values about ₹11,500 crore. Billionaire Nirav Modi made use of flaws of working system of the public sector bank, PNB. Daily we are getting updates related arrest or raids on properties of Nirav Modi and his partner and uncle Mehul Choksi. However, very few of us know about SWIFT. In this blog we will know about role of SWIFT in PNB Scam.

PNB Scam

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Role of SWIFT in PNB Scam


A key component of the scam is that the Society for Worldwide Inter-bank financial Telecommunication (SWIFT), an electronic communication network that connects banks and other financial institutions across the globe. Among other things, a bank that’s a part of SWIFT will use the system to convey credit instruments known as letters of undertaking (LoUs) to other banks situated overseas.

LoU is solely an invitation created to a different bank within the SWIFT network to issue a loan to a consumer. The bank that issues the LoU basically guarantees the bank that receives the LoU request that it stands by the trustworthiness of the recipient. That is, just in case of a default, the bank that issued the LoU becomes responsible to compensate the bank that created the loan to the receiver.

PNB alleges that staff at one of its branches in Mumbai issued fallacious LoUs that were not authorized by its management. This allegedly allowed Nirav Modi’s firms to get loans from the overseas branches of varied Indian banks.

PNB Scam-Why did it happen?

PNB’s internal info systems weren’t seamlessly linked to SWIFT. It’s claimed that the large fund transfers created via SWIFT to Nirav Modi’s firms by a few PNB staff went undetected for several years.

Several critics, however, contend that the fraud isn’t merely a matter of the failure of PNB’s internal control system. Instead, they blame flaws within the system of authority of public sector banks. In fact, the PNB scam came to light only when a whistle-blower exposed it.

Mistakes of PNB Frauds Done By Nirav Modi
·         Issued LoU without margin money.

·         Only single officer named Gokul Nath Shetty was doing investigation.

·         Probably the same person was receiving Receipt issued by foreign bank.

·         Message of SWIFT was not visible on CBS (Core banking solution)

·         Gokul Shetty worked on same desk for seven years. As per rule one person can work on a desk maximum for six months.

·         He managed to increase loan period for one year with the help of officer. As per rule under LoU loan is issued for 90 days.

·         After one year, he took bigger amount of loan to pay previous loan and interest.

·         He invested his loan in fixed asset on foreign land and not purchased diamond.

·         Companies from which he purchased diamonds were his own (most of them)

·         Got success to get issued faque LoU from PNB officer.

Is this the first time?

No. SWIFT has been gamed on a number of occasions. In 2016, there was a cyber-heist of $81 million from Bangladesh’s central bank. Russia’s central bank recently reported that $6 million was taken from a Russian bank last year by exploiting the SWIFT system. Even the reserve bank of India stated on that it had privately warned Indian banks regarding the prospect of misuse of SWIFT a minimum of 3 times since August 2016.

Value of Security Measures in PNB Scam:

On 17 feb, 2018 PNB has taken measure to secure SWIFT message to be verified by three officers which were being done by two officers earlier. But, the question remains the same. If two officers can become corrupt why not three?

Yes, this issue is more about moral policing. Bank officers are using their positions and lot leaving any opportunity to earn black money. They do forget that they are finance army of the country.

Secondly, it has become businessman strategy to make assets on foreign lands with the help of country’s money and flew away whenever get exposed. In India, dual citizenship is not permitted as per constitution; how do these business men manage and get citizenship of another country without leaving citizenship of India.

Will PNB get its money back?

No, as Nirav Modi and his partner both have denied extending any support to CBI enquiry. PNB will be liable to make payment to foreign banks as per rule of LoU. Unfortunately, PNB will pay those 2 billion dollar on default of Nirav Modi and fortunate Nirav Modi will enjoy probably in Belgium with our money.

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