Ahead of disclosing its Q4 FY18 results today, which is predicted to be pretty dismal, Punjab National Bank (PNB) has landed in more trouble with the authorities. According to a CBI charge sheet, the top management at the country's fourth largest bank not only "misrepresented" the factual position on letters of understanding (LoUs) to the RBI but also ignored the apex bank's warnings when credit facilities worth over $2 billion were fraudulently cleared by its branch in Mumbai.
Sources also told PTI that according to the investigative agency, the bank's former MD and CEO Usha Ananthasubramanian and her top officials failed to prevent the Nirav Modi fraud despite having prior knowledge of how LoUs can be used to cheat banks.
That's because Ananthasubramanian was heading PNB when Indian Overseas Bank (IOB), Chandigarh, reported a LoU fraud in 2016 wherein credits were issued by PNB's Dubai branch on the basis of these guarantees. The modus operandi in this case was similar to the seven-year-long fraud perpetuated by the diamantaire and his uncle, Mehul Choksi. As media reports have previously pointed out, the amplitude of the fraud size would have been smaller had it been discovered sooner - as much as $800 million lower just a year earlier.
The sources also claimed that the RBI had issued various guidelines and circulars after the IOB fraud surfaced in order to prevent a repeat, but PNB allegedly failed to implement them in entirety. The PNB officials who fraudulently issued the LoUs had bypassed the CBS (Core Banking Solutions) system and used the international messaging service SWIFT, which was not integrated with CBS despite repeated caution notices from the RBI.
Furthermore, the apex bank had reportedly sent a questionnaire to PNB's top brass seeking to evaluate the LoU issuing process in the bank. General Manager (International Banking) Nehal Ahad had allegedly responded to the questionnaire in concurrence with his seniors, including Ananthasubramanian, in which he had stated that all was well in the bank. This, as the sources pointed out, was a clear "misrepresentation" of facts on the ground.
Ananthasubramanian, who is currently the MD and CEO of Allahabad Bank, Ahad and two executive directors have, hence, been charge-sheeted by the CBI. In a late evening regulatory filing yesterday, the bank disclosed that "In view of the recent developments, Board of the Bank in its meeting this evening, decided to divest the functional powers of Executive Directors, Shri K.V. Brahmaiji Rao and Shri Sanjiv Sharan, and sought their replacement from the Department of Financial Services, Ministry of Finance, Govt. of India."
It is important to note that Ananthasubramanian was at the helm of affairs at PNB during 2015-17. So the latest charge-sheet does not mean that her predecessors had been cleared by the investigative agency. Given that the scam at PNB began way back at 2011, the CBI is also probing the role of other officers.
According to the sources, the present charge sheet, which was filed in a special court in Mumbai, primarily deals with the first FIR registered in the case. This concerned the fraudulent issuance of Rs 6,498.20 crore worth of LoUs to Diamond R US, Solar Exports and Stellar Diamonds. To remind you, the CBI has registered three separate FIRs in connection with $2 billion fraud at PNB by the companies of Modi and Choksi. The latter's role has not been chalked out in detail in the present charge-sheet but is likely to come up in supplementary charge-sheets filed by the CBI in relation to the probe into Choksi-owned Gitanjali Group.
PNB's troubles will likely balloon once it discloses its financial figures for the fourth quarter of the last fiscal. In a recent Bloomberg poll, market analysts estimated that PNB will report a stand-alone net loss of Rs 3,835 crore in the fourth quarter. A Reuters' poll has pegged the loss higher at Rs 3,908 crore. We will know the lay of the land by the end of the day.
With PTI inputs