Alerted banks thrice since 2016 on potential malicious use of SWIFT: RBI
PNB scam
Five bank officials, including the two at the Mumbai branch, have so far been arrested.
As the Nirav Modi-induced Punjab National Bank(PNB) scam continued to take a toll on the banking system in India, the Reserve Bank of India(RBI) said it had alerted banks thrice on potential malicious use of SWIFT infrastructure since August 2016.
Society for Worldwide Interbank Financial Telecommunications also called (SWIFT) are used by banks to facilitate safe transactions. The system allows banks to transact between each other especially when foreign currency is involved. It is reportedly used by over 200 countries and is a common banking tool well known for ensuring secure transaction.
However, in the PNB scam case, the SWIFT system has come under scrutiny with officials claiming it was widely misused by bankers who allegedly manipulated it to move funds in favour of Nirav Modi.
Five bank officials, including the two at the Mumbai branch, have so far been arrested.
The alleged fraud occurred as one PNB deputy manager, with the assistance of one or more colleagues, issued over 100 fraudulent Letters of Undertaking – essentially guarantees sent to other banks so that they would provide loans to a customer.
After entering the transactions on the SWIFT messaging system, the official, who worked at the same branch from 2010 to 2017 despite normal bank practices of regular rotations - did not record them on PNB`s internal system, according to the bank`s complaint.
A PNB source said on Tuesday all its branches have now been asked to reconcile SWIFT messages with entries in their core banking system going back eight or nine years.
India's central bank said it had set up a panel under Y H Malegam to look into reasons behind incidents of frauds in banks.
The panel will also look into reasons for high divergence in NPA classification and provisioning by banks.