“On a hypothetical basis, even if all the liability devolves on us and the regulator finds that no other bank is at fault and we have to meet the liability, then, in the worst case scenario, we will still not breach the regulatory capital requirements,” Mehta said. The bank’s common equity tier-I stood at 8.05 per cent against a minimum of 5.5 per cent required to be maintained in accordance with the Basel-III global capital adequacy norms.
has learnt that the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) will not investigate other banks
with an exposure to loans through fraudulent LoUs. “The investigation remains focused on PNB. Other banks
will be looked into only if they allege fraud and approach investigating agencies,” an official said.
Mehta said the bank would breach the non-performing assets (NPA) levels but that would not trigger PCA action from the RBI. He clarified that the LoU fraud was an outstanding exposure and the liability attached to the rollover of the LoUs, which were being issued since 2011, would not be part of the bank’s cumulative exposure. “Rollover is not included. It is purely outstanding letters of credit,” he said. The bank chief said it had not received any advisory from the RBI as of now, and added the bank regulator was assessing the situation at present.
The bank will undertake multiple audits, including forensic audit, and take steps such as the monetisation of its non-core assets to get out of the mess. It is also considering expediting the sale of some of its fixed assets, including a few office buildings not in use presently, for about Rs 5 billion by March-end, a PTI report said quoting sources.
Mehta said, “We will mitigate the people-related risk and create better checks and balances so that it doesn’t occur in future. Bank has a lot of resources, including non-core assets. We are working on a strategy on how shortly we can come out of this situation,” Mehta said.
On the advice of the ED, the external affairs ministry has suspended the validity of passports of Nirav Modi and Mehul Choksi, accused of involvement in the scam, for four weeks.
PNB has suspended eight more officials, including one at the general manager level, for their suspected involvement in the alleged scam, a senior government official said. The official also said PNB would repay other banks
their dues by March 31 and would be funded from its internal resources.
State Bank of India Chairman Rajnish Kumar told reporters in Kochi it had exposure on PNB as the former had lent $212 million to Modi on the basis of LoUs issued by the latter, according to PTI
A junior branch official fraudulently issued LoUs since 2011 on behalf of firms belonging to the Nirav Modi group — Solar Exports, Stellar Diamonds, and Diamonds R Us — for availing of buyers’ credit from overseas branches of Indian banks, including Allahabad Bank, SBI and Axis Bank. The PNB employees, involved in the alleged scam, did not record the transactions in the bank’s core banking system because of which it was undetected.
“One of the risk management practices that we follow is job rotation. We don’t keep a person for more than three years at one position. There are certain positions which are very sensitive and we monitor those positions very closely,” Kumar said, adding the bank’s international financial communication system SWIFT and core banking system were integrated.
On Friday, the ED issued summons for appearance to Nirav Modi and Mehul Choksi, officials said. They said both Modi and Choksi were summoned under the Prevention of Money Laundering Act (PMLA) and asked to depose within a week. The notices were handed over to the directors of the firms of the two businessmen as they were not in the country. ED sources said the process to attach the immovable properties of Modi and Choksi would begin, and more raids and some arrests might take place in the coming days.
According to the established norms, none of the properties attached or jewellery seized can be used by PNB to recover its losses from this fraud, an ED source said. “These now become the property of the government of India, through courts. If any sale takes place, the proceeds go to the consolidated fund of India,” said the source. A core team of 20 ED officials has been formed, across cities, to work on the case.