BUSINES ETHICS AND INDIAN ETHOS FOR MANAGEMENT

SUBMITTED TO:-

DR. GUNJAN ANAND

SUBMITTED BY:-

MOHIT SARAF
PALAK PATHAK
JYOTI PATIDAR
ANURAG GARG
DEEPAK PATIDAR
Transaction Flow

PNB 2

Issue LOUs via

Importer

swift
money paid to the
overseas branch for
maturity of earlier LOU

Exporters Bank
Clearing Bank
Based on the LOU, the
overseas bank funds PNBs
Nostro account
11
 INTRODUCTION

• The worst bank fraud in the nation's history was revealed to have affected Punjab National Bank, the second
largest state-owned institution in India, on February 14, 2018.
• PNB disclosed that the $1.77 billion (about Rs 11,400 crore) in fraudulent transactions by billionaire jeweler Nirav
Modi and connected organizations.
• Jeweler and designer Nirav Modi, his maternal uncle Mehul Choksi, other members of his family, as well as certain
PNB workers, were the main defendants in the case.
• Early in 2018, days before the scam's revelation, Nirav Modi and his family fled India.
• The largest fraud in Indian banking history has been nicknamed the PNB scam.
 PNB Background

• India's second-largest public sector bank

• Government ownership is 59%.

• A 125-year-oldbranches in 764+ cities

totaling 700011,000 + ATMs

• Utilizing subsidiaries and representative

offices to do international business

• plus 60,000 workers80 million plus

clients
 Who is Nirav Modi?

• Nirav Modi is an importer of diamonds

• Basically importers prefer to take loans in
foreign currencies as interest rates on that are
lower.
• He is into Diamond trading business. He is
the founder and creative director of the Nirav
Modi chain of Diamond jewelry.
• In this case a loan that is taken from any
overseas bank guaranteed by PNB.
• Nirav Modi, the billionaire jeweler who along
with others scammed Punjab National Bank
(PNB) of over 11400 crore’s has fled the
country.
 Members involved in the Scam

• Nirav Modi: The main suspect in this scheme, Nirav

Modi is the proprietor of the Nirav Modi company,
Diamond RU.S., Stellar Diamond, and Solar Exports.

• Nirav Modi's wife, Ami.

• Nishal Modi is the brother-in-law of Nirav Modi.

• Mehul Choksi: Mehul Choksi is the proprietor of the

Gitanjali Group and Nirav Modi's uncle.

• Gokul Nath Shetty, a retired deputy manager, and

Manoj Kharat are PNB employees (clerk)
 Analysis of the Scam

• PNB employees issued the fake Letter of Undertakings (LOU) which could lead to fraud.
The two employees of PNB directly used SWIFT and while doing it, they did not pay
attention on the core banking system (CBS).The FIR contained the details like those two
PNB employees were issuing LOUs in unauthorized way for 7 years.

• Afterwards, one of them retired and the new employee came on his designation. In
January, when the officials of firm demanded fresh LOUs from PNB, the new PNB officer
asked for the collateral security.

• The officials of firm mentioned that this had been never asked by the PNB manager in the
last 7 years.

• Now the bank got signal that something wrong has taken place.

• The new Bank officer got doubt on the past 7 years LOU issuance and he looked into the
concerned matter in detail.
• An Indian bank (A) issues an LOU (Letter of undertaking) at the
request of a corporate to a bank in a different country (B),
guaranteeing a loan that (B) gives to a third party who is overseas.
The third party generally is the beneficiary or the importer.

• The importer sells the goods and repays the loan. LOUs as corporate
lending product is a common practice by banks in India.

• As it is a high risk lending, LOUs are generally issued against

collateral. Regulatory compliance requires the LOU cannot be issued
for more than 90 days.

• After detail investigation, it found near about 100 LOUs issued to

these firms without asking for collateral security. PNB became the
victim of the fraud.

• It faced the problem amounting to about 11,400 crores.

• The PNB reported to the RBI and CBI.

 Scam Operation

• Nirav Modi exported rough store from foreign country worth crores of rupees.

• The employees at PNB Brady House branch fraudulently issued LOU for 365 days without making any
provisions for collateral and by passing Core Banking System (CBS).

• The firm also raised funds from Indian banks overseas branch for paying to the suppliers.

• Nirav Modi's firm again requested the bank to issue another LOU (letter of undertaking) but the
official refused on ground that the company has to keep collateral with bank but Modi’s firm argued
that no such money was kept on margin for the previous LOU.
• After the PNB official started scanning the records and didn’t find any such transactions and
then filed a complaint with CBI.

• Nirav Modi’s firm again requested the bank to issue another LOU but the official refused on
ground that the company has to keep collateral with bank but Modi’s firm argued that no
such money was kept on margin for the previous LOU.

• After the PNB official started scanning the records and didn’t find any such transactions and
then filed a complaint with CBI.
 Legal Penalty

• This case comes under cheating i.e. under

section 420 of IPC.

• According to section 420 IPC the person shall

be punished with imprisonment of either
description for a term which may extend to
seven years, and shall also be liable to fine.

• This case comes under also Criminal

Conspiracy under section 120 B of Indian
Penal Code.
 Ethical Concerns

Ethics in the banking industry is simply defined as

banks must comply with all the laws, rules and
regulations levied by the competent authority to
enhance the confidence of the society.

Following are the Ethical Issues Involved in the

case-
• Not following corporate governance norms
• Tempering the financial data
• Misleading the bank as well as the
government
• Putting self-interest first
 CONTINUE

Nirav modi bribed many authorities in order to

get LOU.
Not paying the amount of loan.
Unethical mortgage leading practices.
Absconding from India .
 Conclusion

• The impact of frauds on entities like banks, and the economic cost of frauds can be
huge in terms of likely disruption in the working of the markets, financial institutions,
and the payment system.

• Besides, these scams can have a potentially weakening effect on 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, discontent and political violence.

• The passiveness of banks to fraud has been heightened by technological advancements

in recent times.
Thank -You