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India instructs banks to link their core systems with SWIFT after huge fraud

RBI has moved to tighten regulations in the wake of the alleged $1.8b fraud

Gulf News


India’s central bank has asked commercial lenders to link their core software with the SWIFT interbank messaging system by the end of April, bankers said, in the latest regulatory action after a $1.8 billion fraud at Punjab National Bank (PNB).

In what has been dubbed the biggest fraud in the country’s banking history, India’s No. 2 state-run lender PNB has accused two junior employees at a Mumbai branch of colluding with companies linked to billionaire jeweller Nirav Modi and his uncle, Mehul Choksi, to obtain fraudulent loans.

The bank alleges the employees issued unauthorised letters of undertaking that the firms used to get credit from overseas branches of other, mostly Indian banks.

A lawyer for Modi has denied his client was involved in any fraud. Choksi has not commented but his firm, Gitanjali Gems, has also denied involvement in the alleged fraud.

PNB says the fraud began as early as 2011 and remained undetected as the staff did not enter the transactions into its core software after sending instructions to overseas banks using SWIFT.

Brussels-based SWIFT has said it does not comment on individual customers.

Many Indian banks, including PNB, have not linked their core banking system with the SWIFT network, which is widely used by global banks to communicate with each other on transactions.

The Reserve Bank of India (RBI), which supervises lenders, has moved to tighten regulations in the wake of the alleged fraud. In a letter to banks this week, the RBI set out more than two dozen checkpoints it asked them to comply with within set timelines, according to a source with direct knowledge.

That list included connecting their core banking software to SWIFT by April 30, the source said.

Asked to confirm whether such a letter had been sent, Usha Ananthasubramanian, chief executive of state-run Allahabad Bank who also heads the Indian Banks’ Association, replied: “Correct”.

“That is an outer limit, but today the urgency is such that maybe I’ll shelve one project and step into this and tell my vendor to fast-track this,” she told media on the sidelines of an industry event on Friday, referring to Allahabad Bank’s plans.

The first source said other checkpoints that banks have been asked to comply with included setting a limit on payment instructions on SWIFT where the beneficiaries were individuals, and putting an additional layer of security on transactions beyond a certain threshold.

Most of the checkpoints prescribed by the RBI would have to be complied with immediately, the source said, with the deadlines for the remainder ranging from the end of March to the end of June.

The RBI did not immediately respond to an email seeking comment.

In a statement on Tuesday, the central bank said it “reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment.”

Audit body begins probe

The Institute of Chartered Accountants of India (ICAI), a state-controlled regulator for the sector, has said it is probing whether auditors played a role in perpetrating the alleged fraud at PNB.

The ICAI said on Thursday it has asked the Securities and Exchange Board of India, PNB and federal investigating agencies to share their findings about the alleged fraud, including anything related to the involvement of any chartered accountants.

The ICAI, which is under the administrative control of India’s Ministry of Corporate Affairs, also said it had set up a panel to study the systemic lapses that contributed to the fraud and to suggest remedial measures and improvements.

Separately, PNB said a news report that the bank had approached global accounting firm PwC to conduct a probe into the alleged fraud that would help it build a case against Nirav Modi and his associates was “totally incorrect”.

The bank also said it had received no instructions from the RBI or the government asking it to pay other banks that had lent to the jewellers based on the fraudulent letters of undertaking.

“Quantico” star cuts ties

Bollywood actor Priyanka Chopra, who also stars in US television series “Quantico”, terminated her contract as the brand ambassador for Nirav Modi’s eponymous high-end diamond jewellery stores that stretch from New York to Beijing.

“In light of recent allegations, Priyanka Chopra has chosen to terminate her contract with the Nirav Modi brand,” a spokesman for Chopra said in an emailed statement on Friday.

Shares in PNB, which have lost nearly 30 per cent of their market capitalisation since the $1.8 billion fraud was made public on February14. The stock ended 1 per cent down on Friday, while Gitanjali Gems fell by its maximum daily limit of 5 per cent to a new low of Rs24.75.