The scam that shook India!
PNB India’s second-largest public sector bank released a disaster on Saint Valentine’s Day i.e., 14th February 2018 by revealing a scam of Rs.11,400 crore directed by one of the country’s richest businessmen of the diamond, Nirav Modi. Nirav Modi had directed and executed the scam with the support of the Deputy Manager of the PNB Mumbai branch named Gokul Nath Shetty and clerk Manoj Kharat. Modi and his Uncle Mehul Choksi schemed with these two people. They’d facilitated the issuance of an unauthorised LOU (Letter of Undertaking) to Modi and his company without following an appropriate procedure PNB had not followed the prescribed procedure for the issuance of LOU to its customer Nirav Modi and encouraged the scam. Whistle-blower Mr. Hari Prasad had transcribed to the Prime Minister’s Office (PMO) in 2016, notifying the govt. for the “biggest bank loot scam in 70 years” in independent India but the govt took no prompt action.
What is whistleblowing?
Whistleblowing is the act of complaining about a flaw that one has discovered. To stand up to the system, however, demands great guts, willpower, and a strong sense of public interest. Even the Whistleblower Protection Act of 2011 took effect in May 2014. Whistleblowing will remain an important component of good corporate governance, but only if such individuals believe they will be protected if they speak up.
Chronology of the case: –
January 29, 2018: Punjab National Bank (PNB) files a police complaint against Nirav Modi, Mehul Choksi, and others accusing fraud to the tune of ₹2.81 billion.
February 17, 2018: The CBI makes the first arrest in the case. Two PNB employees and an executive of Nirav Modi’s group were detained.
February 27, 2018: A magistrate’s court issues a bailable arrest warrant against diamond trader Nirav Modi.
June 2, 2018: Interpol issues Red Corner Notice against Nirav Modi for money laundering.
December 27, 2018: The UK informs India that Nirav Modi is living in the country.
March 9, 2019: British newspaper ‘The Telegraph’ confronts Nirav Modi on London’s streets and confirms his presence in the country.
March 18, 2019: Westminster Court in London issues arrest warrant against fugitive Nirav Modi.
March 20, 2019: Nirav Modi was sent to Her Majesty’s Prison (HMP) Wandsworth till March 29.
May 11, 2020: Nirav Modi’s five-day extradition trial in the PNB fraud case begins in the UK.
December 1, 2020: Nirav Modi’s remand extended, final hearings in 2021.
January 8, 2021: UK court decides to pronounce judgment in Nirav Modi’s extradition case on February 25.
February 25, 2021: UK court rules Nirav Modi can be extradited to India to face charges of fraud and money laundering.
Impact on banks: –
Union Bank of India- The bank lost -5.8 percent led to Rs 633 crores of erosion in market cap between 12 February closing and 15 February closing.
Allahabad Bank: The bank’s stock price lost over -9.9 percent till 15 February 2018. Its market cap is eroded by over Rs 484 crores.
Axis Bank: The share price of the bank lost -3.4 percent till 15 February 2018 and its market value fell by over Rs 4,800 crores.
SBI: The share price tanked -3.34 percent and its market value fell by Rs 8,329 crores between 12 February 2018 and 15 February 2018.
Conclusion: –
PNB scam has exposed several banks to credit risk. they only must examine how the method got diluted. and the way some employees in collusion with clients could lead to the scam of an oversized amount of cash for such an oversized time without
raising any red flag.
The role of the regulator bank is also under question now. Though RBI has come up with many risk management processes for banks. RBI should also authorize the bank to deal with fraudsters in a swift manner there by reducing red-tapism.
References: –
Nirav Modi case: How PNB was defrauded of Rs 11,400 crore – BusinessToday
PNB-Nirav Modi case | Chronology of events – The Hindu
Nirav Modi case: PNB fraud affects stocks of Union Bank, Allahabad Bank, SBI, Axis Bank – BusinessToday
Case Study on Scam in Indian banking industry (Nirav Modi)
Pramana Research Journal
Volume 9, Issue 6, 2019
ISSN NO: 2249-2976