The board Punjab National Bank on Wednesday approved settlement of Rs 6,500 crore worth of Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) issued by the bank which mature on or before March 31, 2018. The bank said it will also honour all subsequent maturing LoUs and FLCs as and when they are due.
“The PNB board’s decision will lead to settling of (352) LoUs worth Rs 6,500 crore with 7 banks in relation to the recent fraud that was reported by the bank. This measure will ensure that India’s banking system at large has the least possible disruption owing to the unfortunate fraud and banking operations will continue to function smoothly,” the bank said in a statement.
“This decision of the board sends out a strong message that PNB takes its obligations seriously but does it in a manner that is compliant with the law. PNB board’s decision will help restore confidence and stability in the larger banking system,” PNB’s Non-Executive Chairman Sunil Mehta said.
The extent of the fraudulent LoU transactions at the Punjab National Bank, allegedly done by Nirav Modi, Mehul Choksi and their companies, is over Rs 12,600 crore. On January 29, the Central Bureau of Investigation received a complaint from PNB against Nirav Modi, Mehul Choksi and their companies for an alleged fraud of Rs 280 crore and an FIR was registered on January 31.
Subsequently, PNB said in a notice to stock exchange on February 14 that it has detected fraudulent transactions of $1.77 billion, and followed it up on February 26 saying the quantum of such unauthorised transactions can increase by around $204.25 million.
The bank on Wednesday said the first phase of SWIFT (Society for the Worldwide Interbank Financial Telecommunication) integration with CBS (Core Banking Solutions) will become operational from the first working day of the new financial year for the bank, April 3 2018. The complete integration will be achieved ahead of April 30 deadline stipulated by the Reserve Bank of India for all banks, it said.
Since the SWIFT that the PNB uses to facilitate overseas finanical transactions was not integrated with its CBS, the bank could not detect the fraudulent issuance of Letter of Undertakings (LoUs) that was going on below the radar, the bank had said earlier.