The Presentation on the Courses of

Corporate Governance
For the topic

“Punjab National Bank”

 Presented By: Group B1

Submitted To: Dr. Sanjay Bhale 1. Ankur Choubey :02
2. Kaustubh Kulkarni :24
 Decision Science CCA 3. Rakhi Mundhada :41
 MBA Sem - III (Batch 2019-21) 4. Utkarsh Patel :60
5. Vaishnavi Dhokchawle :63
 ABOUT
COMPANY
 Punjab National Bank is an Indian multinational banking and financial service
company founded in 1894 as of 31st March 2017.
 It is  second largest Public Sector Bank (PSB) in India, both in terms of business
and its network.
 Punjab National Bank was nationalized in July 1969 along with 13 other banks.
Currently, the bank has over 80 million customers and 6937 branches and 10681
ATMS across 764 cities.
 The bank has been distinction of being the first Indian bank has been started solely
with Indian capital in the year 1940.
 PNB has a banking subsidiary in the UK (PNB International Bank, with seven
branches in the UK), as well as branches in Hong Kong, Kowloon, Dubai,
and Kabul. 
 It has representative offices in Almaty (Kazakhstan), Dubai (United Arab
Emirates), Shanghai (China), Oslo (Norway), and Sydney (Australia). 
History
• Punjab National Bank was registered on 19 May 1894 under the Indian Companies Act, with its office in Anarkali
Bazaar, Lahore, in present-day Pakistan.

• On 31 March 1947, PNB had decided to leave Lahore and transfer its registered office to India; it received permission from
the Lahore High Court on 20 June 1947, at which time it established a new head office at Under Hill Road, Civil Lines in New
Delhi.

• Mergers and Acquisitions

Number Acquisition year Company Location
1 1951 Bharat Bank Ltd. New Delhi, India
2 1961 Universal Bank of India Dalmianagar, Bihar, India
3 1962 Indo-Commercial Bank India
4 1986 Hindustan Commercial Bank India
5 1993 New Bank of India New Delhi, India
6 1903 Nedungadi Bank Kozhikode, Kerala, India
7 2020 Oriental Bank of Commerce Gurugram (Head Office)
United Bank of India Kolkata (Head Office)
Stakeholders
 FRAUD
“

Shining Diamond Trader Took Away PNB's
Punjab National Bank fraud care relates to the alleged fraudulent Letter of
Shine
Understanding (LOU) worth ₹11,600 crore (USD 1.77 billion dollars) that took place
”in its branch in Brady House, Mumbai, making Punjab National Bank potentially
liable for the amount. The fraudulent transactions are allegedly linked to the designer
and jeweller Nirav Modi of Gitanjali Group, against whom a complaint is filed with
the Central Bureau of Investigation (CBI) The transaction were first notices by a new
employee in the bank. The bank then complained to CBI which investigates the scam
apart from ED.
 The bank said that two of its employees at the branch were involved in the scam when the bank core banking system was
bypassed when the corrupt employees issued LOUs to overseas branches of other Indian Bank, including Allahabad Bank,
Axis bank, and Union Bank of India, using the international financial communication system, SWIFT. Three jewellers –
Gitanjali Gems Ltd. And its subsidiaries Gili and Nakshatra are also under the scanner of investigation agencies.
PEOPLE Involved IN the FRAUD
Nirav Modi Mehul Choksi
Owner of Nirav Modi Firm Owner of Gitanjali Group
Diamond RU.S And Nirav Modi’s uncle
Stellar Diamond and Solar
Exports

Ami Modi Gokul Nath Shetty

Nirav Modi’s Wife A former Deputy Manager
Punjab National Bank

Nishal Modi Manoj Kharat

Nirav Modi’s Clerk PNB
Brother-in-Law
 HOW DID SCAM OCCUR ?
 Nirav Modi exported rough stone from foreign countries worth crore of rupees.
 The employees at PNB Brady House Branch frequently issued a LoU for 365 days
without making any previous for collateral and by-passing Core Banking System.
 The Nirav Modi’s three companies named Diamond R US, Solar Export and Stellar
diamond allegedly raise loans from Axis Bank, UCO Bank, and Allahabad Bank by
showing LoU.
 The firm also raised funds from Indian Bank’s overseas Branch for paying to the
suppliers.
 Nirav Modi Firm again requested the bank to issue another LoU but the official refused
on ground that the company must keep collateral with the bank, but Modi’s firm argued
that no such money was kept on margin for the previous LoU.
 After the PNB officials started scanning the records and didn’t find any such transactions
and then filed complaint CBI.
DITECTION OF THE FRAUD
 The scam was detected in the third week of the January 2018 as reported by “The Quint” quoting Sunil Mehta, MD, PNB.
He said that they properly investigated it over 3-4 day and approached CBI on 29 January 2018. An FIR was booked on 30
January 2018. 18 employees from PPNB has been suspended so far and Nirav Modi’s home and offices were raided by the
ED. Officials informed that Modi along with his family fled from India in the first week of January, day before the case
was registered.
 The ED has registered a case under the Prevention of Money Laundering Act (PMLA) in connection with another cheating
case, based on a First Information Report filed by the CBI and conducted raids across Nirav Modis residences in the
country.
 This case is claimed to be the India’s biggest bank fraud. The founder of the company Mehul Choksi also ran away from
the India along with the Nephew after FIR was filled about the Scam. Nirav Modi allegedly took advantage of the
loopholes in the banking system by seeking the Letters of Understanding (LoU).

 It was found through SWIFT trail that on junior level branch official unauthorizedly and frequently issued Letter of
Understanding on behalf of some companies belonging to Nirav Modi Group for availing buyer’s credit from overseas
branches of Indian Bans, “the cautionary note by PNB stated.
What is LOU ?
• A Letter of Understanding (LOU) is a formal text that sums up the terms of an undertakings of
a contract which may have been negotiated up to this point only in spoken form or otherwise informally.
• It reviews the terms of an agreement for a service, a project or a deal and is often written as a step before a
more detailed contract is issued.

What is SWIFT ?
• SWIFT (The Society of Worldwide Interbank Financial
Telecommunication) is a messaging system that runs on a network of
financial institutions globally. It is used by thousands of banks
worldwide to communicate information on financial transactions in a
secure and standardized way.
• Since SWIFT doesn't send money, it requires different interventions,
which makes the whole process slow. It also adds costs to the
transfers.
Effect of fraud on PNB AND PUBLIC SECTOR BANK
 Moody and Fitch places PNB under review for downgrade. Moddy’s has rated PNB ‘Baa3’ and Fitch has
rated “bb”.
 The stock Price of PNB has fallen from Rs.160 to Rs.95.5 as on 9th Mar 2018.
 The NIFTY Bank has also fallen 25810.25 to 24477.65.
 RBI has said PNB to pay all debts to other banks.
 The share price of Gitanjali Gems fallen from Rs.64.2 to rs.15.8 on 9 th March 2018.
 Sanjay Rishi (AmericanExpress), Gautam Mukkavilli (Ex. Executive pepsico), Suresh senapaty (Ex CFO
of Wipro), Kirthiga Reddy (Ex.MD of FB India) resigned from Nirav Modi’s Firestar Co. Board.
 The RBO stops bank to issue LOU.
 Because of the fraud Bank lost trust of people.
 Gitanjali Gems Share Price fallen to 11.15 from 63.55 (open price0 as on 14.2.2018 .
POST-FRAUD FOLLOW UP
• Jan: Modi& family left the country with the fear of fraud to be exposed.

• Feb 14, 2018: Proposal by Modi to sell Firestar Diamond Inc. to pay all the dues within 6 to 8 months. (Declined)

• Feb 17, 2018: Same offer after declining the first one (Declined).

• Reason: It was a tactic of buying time by all the fraudsters.

• Blame by Modi: Bank’s action destroyed the brand and the business. Also, immediate search & seizure operations
jeopardized & restricted his ability to recover the dues.

• March 2018: ED attached the properties belonging to Modi and Choksi worth $815 million.

• Almost 30 banks had fallen victim to illegal LoUs issued by PNB.

• Four large public sector banks i.e. SBI, Union Bank of India, UCO Bank, and Allahabad Bank were also exposed
in the fraud (losses of $212 million- $412 million).

• March 31, 2018:PNB paid $900 million to seven banks to cover the LoUs with $900 million pending.
Future action
• RBI mandate: PNB integrated Core Banking Solution (CBS) with Society for Worldwide
Interbank Financial Telecommunications (SWIFT)as fraud was enabled by the lack of this link.

• Segregation: Front-line and back-office functions, Functions of credit i.e. separate employees for
processing a loan and monitoring/recovering the loan

• Upgradation: Best technology to strengthen in-house inspection and audit systems

• Data analytical cell: A team to examine transaction analytics and point out any exceptional
transactions

• Withdrawal: Power of branches to approve credit, authority of branch’s junior employee to

operate SWIFT
WHAT IS CBS ?
• CBS stands for Core Banking Solution, which is the networking of various bank branches through a
robust IT infrastructure.
• It allows the customers to operate their bank accounts and avail the banking services with a
centralized network.
• In other words, with CBS, their accessibility is not limited to just their bank branch, but the bank.
 The Road Ahead…
• Moody’s Investor Service Inc. downgraded the bank to ‘Junk’.

• PNB’s stocks lost 50% value on Bombay Stock Exchange.

• Net loss of $1.98 billion in 2017-18.

• Extra hard work by the employees to attend every customer properly.

• Customers showed the trust and did not demand their money back/closing the accounts.

• March 31, 2018: Domestic credit & deposits grew by 10%.

• April 2018:Growth in-line with the industry.

• RBI action: Banned the use of Lo Us that adversely impacted on the $85 billion buyers
credit market of India.
 
Conclusion
• The impact of the frauds on entities like banks, and the economic cost of the frauds can be huge in terms of
likely disruption in the working of the markets, financial institutions, and the payment system.

• Beside, these scams can have potentially weakening effect on the confidence in the banking system and may
damage the integrity and stability of the economy.

• It can bring down banks, undermine the central bank’s supervisory role and even create social unrest,
disconnect and political violence.

• The passiveness of banks to fraud has been heightened by technological advancement in recent times.
THANK
YOU…..