Fraudulent Guarantees Confined To One Branch, State-Owned Banks Say After Review
Letters Of Undertaking fraud confined to one branch.
No other fraudulent guarantees, except those already reported by the Punjab National Bank, were found at any of the 5,000 branches of state-run lenders that deal with foreign exchange.
That’s what Sreenatha Sastry, chief risk officer of State Bank of India, the nation’s largest bank, said at a press conference after a three-day workshop of executive directors, chief risk officers and chief technical officers of all public-sector banks. The exercise followed the government’s directive to develop a blueprint in 15 days to deal with operational challenges and technological risks after the nearly Rs 13,000-crore fraud at India’s second-largest public sector lender came to light.
Banks issue letters of undertaking/comfort to help importers borrow funds overseas. Nirav Modi and Mehul Choksi and their firms allegedly obtained such guarantees from some of the employees of the Brady House, Mumbai branch of PNB. The central bank has since banned LoUs and LoCs. That, Sastry said, will increase the cost of borrowing for exporters.
“Each bank scanned their LoU/LoC-related transactions and have confirmed during the workshop that all of them are properly assessed, genuine and accounted for except those already reported,” Sastry said.
Officials of public sector banks also discussed improving risk awareness and ethical awareness among staff, besides integrating SWIFT messaging system with core banking by April 30. There would also be time restrictions on such transactions.
“Controls have also now been put in place that includes an additional layer of approval for all outward SWIFT messages,” a statement issued after the workshop said.
Banks have drawn action plans to further strengthen the controls in the areas of trade finance, SWIFT, credit risk, operational risk besides cyber and information technology risk. They will seek approval from the board and implement the plans in three to six months, Sastry said.
The revised processes are robust, said RK Gupta, executive director at Bank of Maharashtra, also present at the press briefing. They will keep a check on frauds, he said.