PNB Scam: PNB fraud case highlights, PNB 11,400 crore – who and how?

PNB Scam: We all are worried today about the scam which involves one of the biggest banks of the country Punjab National Bank.

CA Ridhi Dhoot

PNB Scam

PNB Scam: We all are worried today about the scam which involves one of the biggest banks of the country Punjab National Bank. How can there be a scam of 11,400 crores without anybody noticing it? Well there are coming a lot of stories behind this and investigation is going on in full fledge, here we are making the readers aware of some key insights from the case:

PNB Scam

Normally Letter of Undertaking (LoU) are issued by banks to provide guarantee for borrowers that in case they fail to repay, the bank will pay on their behalf. Normally, the LoUs are issued for a period of 90 days, but for this particular scam, they were issued for a period of 365 days.

Before retiring, such LoUs were issued by Gokulnath K. Shetty last summer to the companies of a famous Diamond Merchant – Nirav Modi, who also happens to be the nephew of Mehul Choksi, head of Gitanjali Jewels.

Reasons for PNB Scam

The reason why it took so much time for this scam to be detected was due o the following reasons:


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  • Involvement of staff – from bottom level officers to higher authorities, a lot of the lender’s people were said to be involved in this scam.
  • SWIFT, which is the international money transfer tool was not connected to the CBS (Core Banking Solution) of the Bank.
  • Failure on the part of Auditors to detect such a fraud. The Auditors are entrusted with the responsibility of keeping a full check on the transactions of the bank. Even they have failed in this case.
  • Public Sector Banks usually have requirements of routine position change of staff and compulsory transfer in 3 years. However, the same requirement seems not to be complied with otherwise it would have been easy to identify this scam earlier.


As a result of the Punjab National Bank issuing such LoUs, various other banks including Bank of India, Allahabad Bank and Union Bank have become a target of this scam. The liability of paying off these banks is coming over the shoulders of Punjab National Bank.

The PNB team is saying that it is also the responsibility of lending banks to do a cross check before lending money to borrowers simply over the LoU. However, the general principle is that credit can be extended to borrowers if they have a LoU from a Financing Institution.

Punjab National Bank is the second largest Government Bank. It is a shock to the entire economy as 11,400 crore of default is a huge blow.


The Central Bureau of Investigation (CBI) is looking into this issue actively and has charged Nirav Modi, his wife Ami, his brother Nishal and Uncle Mehul Choksi. However, they have not been arrested yet. Also, Mehul Choksi has denied any involvement in the said transaction.

The jeweler has his business not just in India, but also in Hong Kong and other countries. He was also seen in a group picture with PM Narendra Modi in Davos. Also, Rahul Gandhi on behalf of Congress accused Prime Minister Narendra Modi of helping ‘Chota Modi’ fled the country. However, BJP has denied any involvement in the said scam.

PNB Official Statement

The PNB officials have also said to the stock exchange that some of its own officials at a single branch in Mumbai, India had helped Nirav Modi and others get credit through LoU without proper documentations, guarantees and with complying with the rules. The bank will not take this irrational behavior of some of its officials lightly and will make sure that the offenders are punished and prosecuted.

Also, due to this scam, the shares of the Bank have plunged to a great extent. They are facing their 52 week low point as of now. The biggest mutual funds have invested in their shares and are facing negative returns due to this fall in the share price. However, long term investors are seeing this fall in their share price as a correction and are investing heavily in their shares to make gains in the Long Term.

The matter is being investigated seriously. However, no one has taken complete responsibility in this regard as of now.


CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at


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