Will Take "Supervisory Action" In PNB Fraud Case: Reserve Bank Of India

The Reserve Bank of India has carried out an assessment of the control systems at the Punjab National Bank, the central bank announced in a statement on Friday after the government-run bank reported the Rs 11,000 crore scam.

Last month, the bank had stumbled upon the massive bank fraud, which it has claims had started back in 2011 when celebrity designer Nirav Modi started getting some officials of the state-run bank to facilitate huge loans using fake guarantees.

In its first statement after the scandal erupted, the central bank on Friday said it "will take appropriate supervisory action" but underlined that it had not issued any orders to PNB to assume all liabilities arising from the fraud.

The fraud took place with the connivance of some employees at a branch in Mumbai that issued "letters of undertaking", or LoU to a group of companies linked to Nirav Modi. This letter was used to obtain short-term credit from overseas branches of other Indian banks.

A report by Bloomberg indicated that Allahabad Bank has an exposure of about Rs 4,000 crore, Axis Bank roughly has Rs 3,000 crore exposure, Union Bank has about Rs 2,000 crore exposure with rest accounted to State Bank of India.

PNB was alerted to the mega-fraud when on January 16 a group of companies linked to diamond billionaire Nirav Modi presented a set of import documents to the Mumbai branch and requested buyers' credit to pay overseas suppliers.

Since they had no pre-arranged credit limit, the branch official asked the companies to put down the full amount as collateral so the bank could issue LOUs or guarantees. The companies argued that they had used such facilities in the past without keeping any money on margin. The PNB then scanned through records and found no trace of any transactions.