The Great Indian Political Drama - 1 (Oct 2017 - Mar 2018)

[Raju]

On the very first day of PNB's disclosure GoI claimed to have approached interpol for lookout notice of Nirav Modi & family who had fled the country. Today Republic TV reveals Modi is hiding out in dubai & NY was a decoy. How can Nirav Modi escape detection while traversing airports with an interpol lookout notice on him. And also how can he feel safe in Dubai with whom India has extradition treaty and excellent relations. If Nirav Modi is in Dubai he is cornered. Basically the govt is not actively seeking to bring him back and there is no interpol lookout notice on him or is giving him time to create his alibi.

[Trilobite]

If talking will backfire on Modi, IMO silence hurts him even more, so talking is better alternative. Regardless, it is his responsibility to talk on such issues of national importance, it is the nature of the job he was elected for. So when he is keeps quiet he is failing to do his job. His silence is seen as "Daal main kala" by the people.

[crams]

Question I have for the Canadian Pappu. Its all fine and dandy to visit Taj Mahal, ride elephants, and enjoy hospitality and fawning adulation of many a SDRE slaves among the libtards in India. Has Burkha lined up an interview with Canadian Pappu on her quint (or quarts) rag, and give him a podium to preach 'religious tolerance' to ModiJi? But why are his kids not in school and instead wasting their time with him and his wife on their sojourns?

[Supratik]

There is nothing to talk about now unless you want a running commentary from him.

[SSundar]

There is nothing to talk about now unless you want a running commentary from him.

Saar, we want the Modi we voted for in 2014 - the fearless leader. If silence is what we wanted, MMS was better at that.

[Sachin]

The fact that the PM would allow Nirav Modi to stand with him in Davos on 25 Jan 18 shows how clueless he was. If a Politico had some kind of dealings in this

Narendra Modi can never be blamed for this. And if he gets blamed, there are n number of "seculars" who also should get blamed for similar reasons. In KL, the CPI(M) cadres have killed a INC worker. The murder accused taking selfies with a notorious CPI(M) politician is also doing the rounds. With social media asking Yechuri to explain how this CPI(M) politician allowed a selfie to be taken with a murderer/criminal.

Nirav Modi till recently was a rich businessman. He was invited to Davos not by Na.Mo personally. The only reason for him being there was he was a businessman. Na.Mo's security detail would have done some basic checks on the antecedents on each and every person out there. But that would only be on the aspects of security, political leanings etc. No way, would IB or SPG come up with a report that Nirav Modi is a "shady businessman" and so have to be kept aside. These agencies would not be able to even know this, when the banks themselves were allowing such shady characters to thrive.

What is happening is that a story is now being built on such lines. Got one meme on WhatsApp 30 mins back. "All Muslims are not terrorists, but all terrorists are Muslims: Modi v/s All Modis are not crooks, but all crooks being caught are Modis: H. Ansari" .

Talking now is going to backfire for Modi. People want to see action on the ground.

Exactly. But considering the legal infrastructure and archaic laws we have in India, I don't have much hopes on that. Na.Mo can utilise all channels available to him, and then go public on what he has done, and what can now be reasonably done. The banks of the nation cheating the country, cannot be just blamed on the prime minister of the day.

[Trilobite]

Including lokpaal I presume; but yes, I'll say you are subtle.

No subtlety there saar! Recall that BJP's promise of a effective Lokpal institution was part of their manifesto and their PM candidate then had promised speedy appointment of Lokpal. Now 4 years on there is still no Lokpal in sight so it is only justified for the voting populace to ask questions.

no such promise in their manifesto

Download BJP 2014 manifesto from here:
http://www.bjp.org/documents/manifesto-2014

On page 18 read this sentence:

We will set-up an effective Lokpal institution.

[Supratik]

AApian logic. I thought Khujli was going to bring Lokpal first in Delhi and it is something states do. Just creating another institution without strengthening existing institutions is meaningless. When is Khujli going to jail Shiela Dixit? I was told within one month.

[SSundar]

.
What is happening is that a story is now being built on such lines. Got one meme on WhatsApp 30 mins back. "All Muslims are not terrorists, but all terrorists are Muslims: Modi v/s All Modis are not crooks, but all crooks being caught are Modis: H. Ansari" .

Which is why I strongly believe that this wasn't a random incident. This guy was specifically chosen to be outed because people can make the word corruption stick to the name Modi - any Modi will do.

[crams]

Have you noticed a similarity in the modus operendi between Pakis and Congoons and their supporters here who blame ModiJi for all the negativity? TSP for years was claiming they had nothing to do with pigLeTs, blanket denial and only 'moral and diplomatic' support. When that position became untenable, what did they do? They started equal equal on terror. Invented bold-faced lies on so called Indian involvement in terror attacks in TSP, abducted an Indian (who was at best a spy) and claimed he was fomenting terror. So now its 'both sides' and so their culpability is wiped out in one stroke.

Likewise, corruption and incompetence and dynasty is the Leitmotif of Congoons. From day 1 when ModiJi took office, they were looking for any fig leaf, any dog bone to pin corruption against ModiJi. So now they have stooped so low including many here, to pick an absolutely unrelated issues, for e.g., the fact that last name Modi is common, to then attack PM ModiJi for this and do equal equal with Congoons. My contempt for Congoons and turncoats over here who have turned anti ModiJi has multiplied manifold. There is nothing Pappu has got to offer, nada, zilch, and yet they do equal equal and attack ModiJi despite his tireless hard-work for India.

I have no way of systematically proving this, nor is it going to abate the attacks and hatred of ModiJi, but it seems to me that all the good work ModiJi is doing is actually resulting in disruptions to the 70+ year old Congoon corrupt infrastrucure and short-term pains to the common man, and the Congoons are using these travails to hang ModiJi by his own petard. Need to see how successful they will be. I mean whether people are seeing through the fraud of Pappu and his slaves or not.

[Trilobite]

If the existing institutions were strong then there wouldn't be a need for Lokpal to begin with. Lokpal is sorely needed because of the weakness of existing institutions.

Beside if the exercise of setting up a Lokpal institution is meaningless then why include it in the manifesto?? Now I am no fan of Kejriwal or Sheila Dixit but they are not relevant to the issue of failure of BJP to appoint the Lokpal.

Certainly Kejriwal or Sheila Dixit did not arm twist BJP to include "We will set-up an effective Lokpal institution" in their manifesto.

Please understand that BJP is solely responsible for what it does or does not include in its manifesto, no other X,Y,Z leaders from other parties can be held responsible for that.

[srikumar]

If the existing institutions were strong then there would not be a need....

Why aren't the existing institutions strong? Is it that they were fundamentally weak to begin with?

[chetak]

What actually happened in PNB scam? Let’s start from the concept.

What actually happened in PNB scam?

Let’s start from the concept.


First, The Concept

Let’s understand how things work.

Some importer, let’s call him Nirav Modi or NM, wants to import pearls or
diamonds and then sell them. The purchase requires money, so NM approaches a
bank, say Punjab National Bank (PNB).

PNB says look, I’ll give you a loan but it will be like at 10%.

NM thinks hard and says, no, that’s too much. Wait, why don’t I take a
foreign currency loan instead, after all I’m buying in dollars? Much lower
interest rates no? I can get at LIBOR+2% and LIBOR is like 1.5% so I’ll have
the money at 3.5%!

But who will give NM a foreign currency loan? A bank abroad? They don’t know
NM. They don’t have any history of NM, so why will they give him money?

SO NM goes to PNB and says, boss, you’re my banker, so please help some
foreign bank give me some money to buy diamonds. Say that you will guarantee
my loan by giving me a “Letter of Undertaking” (LOU).

PNB now should be saying look, if you want me to give Rs. 100 cr. guarantee,
you give me stuff worth 110 cr. at least. As collateral.

But PNB, for some strange reason, doesn’t ask for collateral. More on that
later.

So now the foreign bank is ready to lend NM the money. Because PNB will
guarantee it. And the foreign bank trusts PNB. Why does it trust PNB?

Because PNB sends a message on SWIFT – the banking message service – that
PNB guarantees Rs. 100 cr. of money for 180 days for Mr. NM at an interest
rate of, say, LIBOR + 2%. It’s like a message – written in stone,
effectively – that says PNB will pay if NM doesn’t pay.

In fact the foreign bank trusts only PNB. So it gives the money to PNBs
account with it, called by PNB as a “Nostro” – the account that PNB
maintains with banks abroad, where the other bank will send money meant for
PNB customers.

PNB’s nostro account gets the money.

PNB then gives NM the money from the Nostro account, usually paid off to
whoever NM is buying his diamonds from. This payment is to someone outside
India usually, to fund a purchase of diamonds or whatever.

Note this carefully: The other bank gives money to PNB’s Nostro account. Not
to NM. They don’t care about NM. They only know that PNB has given a
guarantee on the SWIFT channel.

Note: the other bank is nowadays mostly the foreign branches of Indian
banks. Because the phoren banks have realized something sinister – that PNB’s
guarantee is a strange beast that isn’t backed with much, but we’ll come to
that

The foreign bank couldn’t care less about whether NM was buying diamonds or
bitcoin – to them, PNB would pay back even if NM’s bitcoin wallet got
stolen.

Why does PNB give a guarantee? Fees. Each year, a bank may charge upto 2% to
give the LoU.

So What Happens When It’s Time To Pay Back?

NM has to get the pearls in India, sell them, receive the money and pay PNB.
On the due date written on the LoU.

Then PNB will pay back the foreign bank saying okay, we got the customer’s
money so we’re giving it back to you. With interest etc.

That’s what is supposed to happen. But in reality, things went a little
berserk, it seems.

The Reality: A Bit of a Ponzi

NM might not pay back at all. NM might use the money to speculate in the
markets. Or do something else.

What if NM in the above example simply didn’t have the money to pay back?
Instead, he asks a PNB official to open ANOTHER LoU. For the amount owed
plus interest. So if we had the first LoU at $10 million the second one is
$11 million to cover the interest on the first.

The money from the second LoU is used to repay the first. It’s just rolling
over of credit. Over and over. Standard definition of a ponzi scheme.

This can easily balloon into a larger amount, so large that it’s too much.
In effect many such arrangements have turned into semi-ponzi schemes, with
one LoU being opened to repay another and so on.

Which is what is likely to have happened.

We don’t know the details, but it looks like:

Nirav Modi took loans from foreign branches of Indian banks through an LoU
issued by PNB

This was done through a SWIFT based LoU issued through a rogue employee (or
many of them) at PNB

The orders never showed up in the core banking system for monitoring

LoUs were rolled over all the way since 2011, and possibly increased over
time too.

The rogue official retired in 2017, and the replacement refused to roll over
the LoU which came due in Jan 2018 because he couldn’t find the past
transactions in the system

No rollover means a default, since there was no money to pay. So PNB quickly
files an FIR saying oh goodness we have lost 280 cr. on the Jan LoUs

Then someone said, “Abeyaar, is there more of these not-in-system LoUs?
Someone check no?”

Then someone checked.

Oh gawd. 11,400 crores.

That’s a lot of crores.

Everyone in the bank panicked.

Why couldn’t Nirav Modi just pay it back? He must have the original money
no?

Because if it was ever intended to be paid back, the rollovers wouldn’t have
been required. At some point, things got so out of hand that rollovers were
required in order to stay current.

Typically this would not be a problem. If PNB had done things right, they
would have had collateral worth the amount of guarantee, and they would have
sold that collateral and paid the foreign bank.

But, and here’s the real issue: PNB didn’t have any collateral.

Why did PNB give a guarantee without collateral?

If you and I go for a loan to a bank, they’ll ask us for income proof, and
collateral. Only small tiny personal loans and credit card loans come backed
without collateral. For something of the order of 11,000 cr. you would think
they would ask for collateral.

Especially after the scene with Mallya where loans to Kingfisher were given
on nearly no collateral (though even there they had a house and some
promoter shares pledged)

Why did PNB give this guarantee then? It’s typical – banks give guarantees
for more the amount you give as collateral. Because business relationships
etc. And then:

Because nearly every bank is doing it.

The loan was not a “fund based limit”. In a fund based limit like a term
loan, the bank pays out money. In non-fund-based limits, the bank will only
pay if someone else defaults or an event happens – like a Bank Guarantee or
an LC or an LoU.

Meaning, PNB assumed that the foreign bank was giving a loan directly to
Nirav Modi and that PNB needed to pay only in case Nirav Modi defaulted. So
in the eyes of PNB it was always an “non-fund-based” loan.

But this is how a significant part of import financing works. They all
rollover credit, and they all use LoUs for much higher than they can offer
as collateral.

From my sources, the scale is huge. For every Rs. 100 that a bank has
collateral, they will easily provide LOUs for upto 6x the amount. This is a
real problem – that most public sector banks do not keep much collateral
against non-fund-based limits given to importing customers.

So even if a bank has collateral, it’s nowhere near enough. And then, such
unfunded liabilities are not even reported to RBI!

Basel Reporting: No Disclosure

PNB has “unfunded” exposure of 11,000 cr. they say. But they don’t even
reveal it in their latest Basel III disclosure:

The funded exposure to “Gems and Jewellery” is shown at 1860 cr.

Unfunded to the same sector: 842 cr.

This doesn’t even add up. So, in effect, PNB didn’t reveal that it was
funding massive quantities of “unfunded, contingent exposure”. They will of
course pretend that they didn’t know, because the transactions weren’t in
the core banking system.

Did Employees Hide it? Was PNB Responsible or was it a fraud?

Can employees be responsible? Could they have hidden the credit and the
rolling over of LoUs? But honestly, how does a 11,000 cr. credit pass muster
without top management realizing it?

Think of it – your nostro account with these other banks keeps getting big
credits that add up to 11,000 cr. Will you not reconcile it in the
accounting? The “why is this money even here?” question should have been
asked by someone who audits accounts, one thinks?

And the SWIFT messages. It’s a specific kind of message. Why wouldn’t PNB
audit the SWIFT trail? Reconcile it with the core banking system? How many
more such skeletons will tumble if they do?

Their excuses are

Data wasn’t entered into the core banking system. (Of course, otherwise you
would have had to report it)

LOUs weren’t authorized. (Hard to believe, because the amounts are very
large. Surely someone on the top would know?)

The SWIFT system was illegally used. (Again, hard to believe that a bank
like PNB would not audit its SWIFT messages regularly. Or its auditors. Or
RBI.)

On the face of it, it looks like the ex-employee is being used as a
scapegoat. It’s likely that a lot of people were in on this thing. And that
it generated massive, fat fees for PNB all these years.

Fees wise: Imagine 11,000 cr. worth LoUs being renewed each year – that’s
upto Rs. 200 cr. in fees that was all hitting PNB’s top line. You could
bribe an employee to maybe give you a small increase – say 10-20 cr. but
when you hit numbers like 11,000 cr. this is surely something the top
management would know.

What’s the Scale of this scam?

While PNB reported it as a 11,000 cr. scam, they filed an FIR with the CBI
for only Rs. 280 cr. This has probably expanded since then but even if the
total outstanding is as much as that, there’s a good chance that the actual
loss amount will be lesser.

All of it will be borne by PNB right now. Whether someone abused their SWIFT
usage is not relevant, if PNB’s SWIFT message said they will pay, they have
to pay if there is a default.

But think about the fallout. The problem was that some liabilities were not
in the system. There could be more such LoUs. From the same branch or
others. Other banks could have such LoUs too. It’s trivial to start
looking – and we know that Nirav Modi will not be an isolated case.

Also, the issue was that the limits had no collateral behind them. If all
banks are told to verify their non-fund-based limits and demand collateral
against them (say at least 25%) then the scale would be absolutely massive.
It’s not like this is happening only with Nirav Modi or Choksi. A very large
number of importers of commodities have been doing this, and rotating
credit. A change in regulation here can change the game dramatically for
every other bank (and import account) in the system.

The simple point: this particular transaction will result in a lower loss
than 11,000 cr. for PNB. Because of recoveries and such. But if RBI asks all
banks to pull up collateral on such lending and stop such practices, the
scale is many times larger.

What about the PNB stock?

It’s fallen 17%. But note that it already has 60,000 cr. of gross NPAs.
Another 11,000 cr. will hurt it but not kill it. It won’t die – the
government will take it over. Shareholders might suffer, but come on as a
shareholder of a public sector bank you’re used to suffering.

The problem really is: There is never just one cockroach. When you go
deeper, you are likely to find more dirty, dark secrets, and none of them
will be any good.

PNB is gonna hurt for a while, but so are others who will find their books
similarly tarnished once they investigate.

Will This Bring The Market Down?

Have you been living under a rock? Nothing will ever bring the market down,
nowadays.

But the one thing that does bring markets down is the outflow of liquidity.
What if so much of the “ponzi” credit – essentially money that was rolled
over very month – is being invested directly, or indirectly, into stocks? If
RBI tightens up, liquidity will pull money out of stocks, and that will
hurt.

Of course, this hurts the fiscal deficit since PNB has to be rescued. So
bond yields are up to 7.6% and therefore we’d avoid any long term funds or
bonds. Short term it will have to be.

But overall, we wouldn’t worry too much. Just react, don’t predict. What
would you do if stocks fell? Better to answer that than to say they will, or
they will not.

(And no, not buying PNB)

Our View: Fix it.

This is the Indian public sector banking system. Fix it.

How can you have transactions on SWIFT outside CBS? Fix it.

Why would you not reconcile the nostro accounts? Suspend the auditors. Fire
top management. Fix it.

Closing the door behind Modi, who’s already left the country, is probably
useless. If you find fraud, invoke their personal guarantees, and file
cases to attach their personal properties. After that, file in NCLT to make
these companies insolvent. Take the hit, and try to recover.

Find out more such instances where collateral cover is too low. Find out if
the LoUs or LCs are just getting rolled over or is the customer actually
paying back through the Indian current account. And if not, demand more
collateral to avoid further spread of the ponzi.

But this is quite unlikely to happen because the banking system is going to
take massive hits now, and we’re going to have to deal with the fallout of
really horrible systems. It’s amazing that our banks have been this lax, but
they have been allowed to; with no bankers being investigated, the rot
inside the banks has been ignored and instead, industrialists have been the
target of outrage. It’s time to look at banks as malicious players too, and
to fix that rot.

[chetak]

PNB scam: Nirav Modi episode shows how corporate frauds are eroding credibility of India's banking system

PNB scam: Nirav Modi episode shows how corporate frauds are eroding credibility of India's banking system

K Nageshwar, Feb 20, 2018.

Corporate frauds like the Nirav Modi scam, phenomenal rise in non-performing assets (NPAs), new provisions like bail-in under Financial Resolution and Deposit Insurance (FRDI) regime are a multi-pronged conspiracy aimed at weakening India's predominantly public-owned banking system. This would result in corporate appropriation of public savings besides diverting household savings into speculative investment to fuel market bubbles. Thus, the Nirav Modi scam is not an aberration.

The complex interlinkages in the multitude of processes and policies need to be unravelled. Domestic savings, domestic investment and domestic market are the three pillars of Indian economy and were mainly responsible for largely insulating it from the contagion effect of global financial crisis. The banks account for 70 percent of India's household savings, indicating the credibility they enjoy. Public sector banks account for a lion's share of these household bank savings. Thus, the public ownership of India's financial system greatly contributed to the stability in India's banking system despite problems of work culture and associated irritants.[/color] This was even acknowledged by the then prime minister and the messiah of free market reforms Manmohan Singh in his address to the G-20 summit.

There is a systematic attack on India's public-owned financial system. This is not a policy aberration, but, an orchestrated attempt to erode people's confidence in the Indian banking system.

Firstly, the mounting NPAs and the RBI guidelines to make suitable provisions for such bad loans are seriously eroding the profitability and thereby the viability of these banks. While the common man saves his earnings in these banks, the corporates appropriate these savings. This is evident from the fact that the big corporates account for the major chunk of NPAs in Indian banks, especially the public sector banks. 12 of the largest corporate defaulters, whose names are yet to be officially revealed, account for around a quarter of the NPAs in the commercial banking system. As noted economist CP Chandrasekhar writes in Frontline,"When the ratio of stressed assets to gross advances in the banking system has crossed the double-digit mark, or when stressed assets are a large proportion of outstanding advances, a few borrowers account for a large share of defaults. This suggests that banks have been willing to build their loan books with a large share of advances to some borrowers, who it is now clear were potential defaulters. "


It is difficult to believe that this can be the result of only fraudulent decision-making by few incompetent or corrupt bank officials. All these big borrowers enjoy political patronage irrespective of which party or coalition rules the nation. Thus, politician, business man, bureaucrat, criminal nexus operates so blatantly in the financial system too. This is more evident if one looks at the recurring incidents of increasing number of corporate frauds happening in India's premier banks. The Nirav Modi episode and its manifestation is one such latest example.

A middle class law abiding citizen with clear repaying capacity finds it difficult to get a bank loan even after mortgaging his assets which are worth much more than the loan amount. A farmer has to commit suicide when he is named and shamed by banks for not being able to repay his few thousands loan as the nature and market cripple his livelihood. But, Nirav Modi and the likes can easily get away for years together by taking LOUs to the tune of thousands of crores, bypassing the core banking solutions and regulatory supervision.

The concurrent audit, internal audit, external audit, random audit and finally even the RBI audit fail to either prevent it or notice such sinister machinations by Nirav Modi & Co, catapulting India into high ranks in 'ease of committing fraud index'. Should the citizen of India believe that all this is a mere aberration and a crime committed by few individuals? It is a systemic malaise aimed at eroding the confidence of people in India's banking system, especially the public sector banks.

Despite mounting bad loans, the perception that the liabilities of these banks are backed by a sovereign guarantee has prevented a run on these banks. The controversial bail in provisions and the talk of hair cut in the Financial Resolution and Deposit Insurance (FRDI) bill 2017 precisely aims at destroying this public perception.

Surprisingly, the corporates who are playing havoc with these financial institutions with their bad repaying behaviour and fraudulent practices are the beneficiaries of their consequences too.

The deteriorating financial health of public sector banks is concomitant with policies that allow industrial houses to own banks. Such a measure would lead to further and more direct appropriation of public savings through connected lending.

Meanwhile, the loss of credibility for the banks would result in diversion of household savings into speculative sectors like capital markets. The average Indian is away from equities market due to its volatility and the inherent risks associated with it. But the major objective of weakening the banking system is to fuel investments in stock markets. This will create more stock market bubbles as the equities do not reflect the real economic trends.

If a corporate house wants to set up an industry by borrowing from a bank, it has to pay interest and show collaterals. The raising of resources in the stock markets does not need all this. Thus, diversion of people's savings from banks to stock markets would offer the big business houses with abundant and cheap fiscal resources.

But, such an eventuality would deprive Indian economy of much-needed financial intermediation to sustain its broad-based economic growth and put the hard-earned household savings at the mercy of rapacious bulls and bears.

[chetak]

Nirav Modi's letter claims Punjab National Bank 'closed all options' to recover pending dues by going public

Nirav Modi's letter claims Punjab National Bank 'closed all options' to recover pending dues by going public

Feb 20, 2018

Mumbai: Nirav Modi, the kingpin behind the largest banking scam in the country's history, has said Punjab National Bank's overzealousness has shut the doors on his ability to clear the dues, which he claimed is much lower than the bank has gone public with.

In a letter Modi wrote on 15/16 February to the PNB management, he pegged the amount his companies owes to the bank under Rs 5,000 crore. "The erroneously cited liability resulted in a media frenzy which led to immediate search and seizure of operations, and which in turn resulted in Firestar International and Firestar Diamond International effectively ceasing to be going-concerns," he wrote.

"This thereby jeopardised our ability to discharge the dues of the group to the banks," Modi, who left the country along with his family in the first week of January, wrote in the letter.

"In the anxiety to recover your dues immediately, despite my offer (on 13 February, a day before the public announcement, and on 15 February), your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues leaving a trail of unpaid debts,"he said.

The letter also refers to the extended discussions between him, and between his representatives and the bank officers and also his emails on 13 and 15 February.

It can be noted that PNB, the second largest State-run bank, had on 14 February informed the exchanges of detecting a $1.77 billion fraud at its Brady House branch in Mumbai's Horniman Circle area and named the firms led by Modi and his uncle Mehul Choksi's Gitanjali Group and some other diamond and jewelry merchants as suspects.

The bank has also filed criminal complaints with CBI and the ED, both of which launched nationwide searches on dozens of offices and residences of the alleged fraudsters. The bank has named Modi's brother, his American wife Ami, and uncle Choksi besides some others in the FIR.

On the over Rs 11,000-crore loss claimed by PNB in the FIR, Modi said, "As you are aware, this is entirely incorrect and the liability of the Nirav Modi Group is substantially less. Even after your complaint was filed, in good faith I wrote to you saying please sell/allow me to sell Firestar Group, or their valuable assets, and recover the dues not just from Firestar Group, but also from the three firms."

Valuing his domestic business at around Rs 6,500 crore, he said "this could have helped reduce/discharge the debt to the banking system", but quickly added that this is not possible as all his bank accounts have been frozen and assets have been sealed or seized.

He added that PBN had time and again acknowledged that "the buyers credit facility has been extended by it to the three partnership firms since several years; that there has been no default on the part of any of these firms over all these years; that money has gone through PNB over all these years for the repayments of the advances given by the overseas bank branches under the buyers credit".

"That Firestar International and Firestar Diamond International have never been in default to any bank, and the bankers are fully secured," he added.

He also said that PNB has over the years been earning bank charges to the tune of crores of rupees on the buyers credit facility extended by PNB to the three partnership firms, and that PNB has extended the money to the firm's buyers as well from where also it has been receiving full payments, with interest and on time all, these years.

On the valuables that CBI/ED searches yielded Rs 5,649 crore, he said "these, and other assets of the group and the three firms could have settled all the amounts due to banks. However, now that stage appears to have passed".

He concluded by requesting the bank to "be fair, and support my efforts to make good all the amounts that are found due by my group to all banks".

Owning up everything, he said the bank has wrongly named his brother, who is not at all concerned with the operations of the three firms or other companies. "My wife is not connected with any business operations at all and she has been wrongly named. My uncle is also wrongly named in this complaint since he has an independent and unconnected business and none of them are aware or concerned with my dealings with your bank," he said.

"Whatever may be the consequences I may face for my actions, the haste was, in my humble submission, unwarranted," Modi conludes and makes has requested the bank to permit payment of salaries to 2,200 employees from the balance lying in the current accounts.

[chetak]

Punjab National Bank fraud case: Here are some unanswered questions in Rs 11,400 crore scam

Punjab National Bank fraud case: Here are some unanswered questions in Rs 11,400 crore scam

India Naresh Malhotra, Feb 19, 2018

The arrests of Gokulnath Shetty and Manoj Kharat, the former deputy manager and single window manager respectively at Punjab National Bank (PNB), make it sounds like the Rs 11,400 crore bank fraud that was executed using the issuance of fake Letter of Understandings (LoU) to billionaire jewellery maker Nirav Modi was an act of fraud and only that. But one will miss the larger problem if the case is looked at this way.

The happenings at PNB are reminiscent of the Winsome Diamonds fraud that took place a few years ago. It raises many questions.

To begin with, a fraud of this magnitude can happen only when everybody — including bank officials, auditors of various persuasions and regulators — keep their eyes shut and let the act develop. One of the major points that has come out of this case is that SWIFT platform was not linked to CBS (core banking system), that is why the junior official could put through transactions without them being reflected in branch accounts.

This arrangement is flawed since SWIFT and CBS are stand-alone platforms and are not interfaced. There are a number of checks and balances built in to the system to detect unauthorised transactions. These include

• In every SWIFT input transaction, at least three officials are involved: Maker, checker and authoriser. A single person cannot authorise any LOU. Then how did this fraud happen?

• A daily report is generated by the SWIFT system wherein all incoming and outgoing messages, financial as well as non-financial, are reflected. All financial transactions appearing on this list are ticked/tallied with CBS. What happened to these reports?

• All vouchers generated, including those related to contingent liability on account of LOU, in the branch are required to be manually verified with the system generated reports. Did this too fail?

• Every Nostro account has a mirror account in the home branch. As per normal banking practice, the credits and debits appearing in the Nostro account are reconciled on a daily basis. Thus, the credits afforded by the LOU discounting banks needed to be checked daily. The absence of a contra contingent liability in the CBS would have shown-up on the very next day, had daily reconciliation been done diligently.

• Even if the compromised officials had been inputting unauthorised SWIFT messages, they must have been recovering the commission/fee/charges on such transactions. The appearance of such a huge income without an underlying transaction should have raised red flags as to the source of revenue, and a consequent search would have revealed the fraud.

• For transactions conducted until a year ago, at the maturity of LAU, some account (most probably borrower's) would have been debited to reimburse the overseas bank for the lending made to PNB under various LOUs. It should have raised suspicion as reimbursement was being made without a contra appearing in PNB books.

• The movement and build-up of contingent liability volumes of the branch should have been monitored by the branch's top management and controllers on the basis of weekly/monthly/quarterly reports.

• Monthly irregularity reports, that are submitted to controllers, would have definitely shown these outstandings. Did the bank fail to do this? How come none of these checks worked to trigger the PNB fraud?FirstCutByManjul19012018

• As the said fraudulent transactions have been going on for several years, what have the plethora of auditors/inspectors been doing? Typically, the branch is subjected to concurrent audit, quarterly statutory audit by external auditors (reputed chartered accountancy firms) appointed by the RBI, periodic internal audit by HO auditors/inspectors, RBI Audit under Section 35 and FEMA Audit.

None of these could point out the irregularity. Irrespective of whether transactions at PNB was an act of fraud or irregularity, bank's liabilities towards counter-party banks is absolute and it will have to make good the loss. As is evident, the said fraudulent transactions could have been detected at any stage by following the laid down systems and procedures. But apparently the safeguards built in the system had been neglected. It seems that entire hierarchy was in the know of the developments and exposures were taken with their tacit concurrence. A low-level officer cannot indulge in such voluminous transactions without go ahead from the higher-ups, who could anyway have checked the subordinates at any point of time as all transactional information was available on the tap.

The bottomline is this: There are many unanswered questions in the Rs 11,400 crore PNB fraud case. The role of regulator and auditors that helped the fraud to happen needs to be probed in detail. The arrest of one or two middle-level employees would be akin to treating the symptoms of disease and failing to notice the deeper rot.

The author is a former executive with SBI

[abhijit]

If RBI reform its audit process and do the job it is supposed to do then many such frauds can be avoided. Bankers around the world are there to make money so bad elements among them are expected. It is the financial authority who does not have any such baggage should keep them in check.

[abhijit]

going after only nirav modi or shetty is like repeatedly chasing thieves after theft, but never bother to question the authority who supposed to maintain the law and order in first place.

[chetak]

going after only nirav modi or shetty is like repeatedly chasing thieves after theft, but never bother to question the authority who supposed to maintain the law and order in first place.

The core of the problem are the greedy bankers.

tampering with public funds like bank deposits, insurance and mutual funds etc should carry an automatic and full life sentence without parole.

nirav modi, mallaya like excrescences are only incidental to the looting.

[Prasan]

Lokpal will be another court/judiciary like system. One court is difficult to handle , forget about two such systems. It will keep giving politically correct statements. If it doesn't go with the thought process of civil society like probes into islamic nexus ,media will cry hoarse and degrade their credibility.
Plus it will be difficult to pass fully independent lokpal bill with all powers. Other parties will surely block it.
Plus who will head it. Do we have Harishchandra type people. Surely we have but will they be made. Dont suggest judges or ias officers name for it.
There is no political appetite for it.

[abhijit]

going after only nirav modi or shetty is like repeatedly chasing thieves after theft, but never bother to question the authority who supposed to maintain the law and order in first place.

The core of the problem are the greedy bankers.

tampering with public funds like bank deposits, insurance and mutual funds etc should carry an automatic and full life sentence without parole.

nirav modi, mallaya like excrescences are only incidental to the looting.

absolutely. It is a perpetual cat and mouse game. No system can be full proof. Idea is to make the game as difficult as possible for greedy bankers and bizmen. And if caught then rot in jail for 50 years.

[Raju]

going after only nirav modi or shetty is like repeatedly chasing thieves after theft, but never bother to question the authority who supposed to maintain the law and order in first place.

The core of the problem are the greedy bankers.

tampering with public funds like bank deposits, insurance and mutual funds etc should carry an automatic and full life sentence without parole.

nirav modi, mallaya like excrescences are only incidental to the looting.

Greedy bankers are one aspect. But what is also suspiscious is how RBI & GoI maintains studious silence over their oversight of banking transactions.

I am now convinced that India post 2010 has become a ponzi scheme where milking middle class (folks earning between 40k-2l per month) is the main objective and consensus across political, babu & corporate classes. Why is it that most taxes, rules, tariffs are aimed at only this particular group ? Put them in shackles and ensure only middle class compliance with aadhar and other id, curtail their public voice through aadhar coercion and curtail their ability to rise through income and wealth barriers and turn middle class Indians to permanent underclass like they have in usa. Just keep working and keep investing in corporate ponzi schemes like stock market and broken public sector banks with continually reducing interest rates. The rich have successfuly evaded any aadhar oversight through SWIFT excuse and PN excuse and they just play around rolling public wealth over while leading extravagant lifestyles for free. Govt of India which claims to represent best interests of Indians keep giving the rich leeway by allowing them to escape out and making on purpose watered down cases against them in foreign courts or showing no interest in having them extradited while arresting farmers, clerks, small traders on default of mere thousands or lakhs.

Also another facet is when UPA-2 was around and inflation was rampant, no amount of repo rate tweaks, CDR adjustments made no fiscal impact because this banking system had so many loopholes that was like manipulating water flow with a leaky shutter.

Even now banks and management are hiding real nature of NPA by turning them over each year as fresh debt. Most Indian banks will in reality will be groaning under NPA if they are not allowed to turn over old NPA as fresh debt for just 1 fiscal.

[Aditya_V]

Lokpal will be another court/judiciary like system. One court is difficult to handle , forget about two such systems. It will keep giving politically correct statements. If it doesn't go with the thought process of civil society like probes into islamic nexus ,media will cry hoarse and degrade their credibility.
Plus it will be difficult to pass fully independent lokpal bill with all powers. Other parties will surely block it.
Plus who will head it. Do we have Harishchandra type people. Surely we have but will they be made. Dont suggest judges or ias officers name for it.
There is no political appetite for it.

Worse Lokpal gave the Magsaysay award winners to dispose of the prime Minister, Magsaysay is appointed by the Rockafeller family in New York. So our democracy will be meaningless and NY Hedge funds will rule us.

[Aditya_V]

Raju you are not correct, those who have done Bank audit know that the Banking Mess started in 2007 and after there has been a lot creative accounting with Banks transferring NPA accounts among each other, after Chidambaram's 68K crore write off Banks issued another 1Lac crore credit before 2009 elections, this 170 lac crore which was partly used for victory in 2009 was also a major cause for bankcruptcy of the whole system. What happened to Projects like Jalnagyam, how many acres of land was irrigated with these funds.

The country was living by spending tomorrow credit in 2005-09 and today we are facing the consequences, only thing good SC lawyers having influence across the courts, Bureaucracy and media mock us since they feel they are untouchable.

Infact, this is not just an Indian mafia but an international mafia having its tentacles accross borders with folks like Dawood involved in it. Proper transparency and the truth will destroy many a myth that is out there today.

[chetak]

Akhilesh MishraVerified account@amishra77
Feb 15

The much touted years of Raghuram Rajan, first as Economic Adviser to GOI and then as RBI Governor, has many skeletons in its cupboards. From the entire NPA scam to the humongous rise in high denomination currency - all happened under the watch of this 'dream team'. #PNBScam