India’s PNB says internal probe into US$2 billion fraud ongoing

NEW DELHI: India’s state-run Punjab National Bank (PNB) is conducting an internal investigation into an alleged US$2 billion fraud and more heads could roll, its chief executive said in an interview.

The country’s second-biggest state lender disclosed in February that companies owned by two jewellers defrauded it by raising credit from overseas branches of other Indian banks, using illegal guarantees issued by rogue staff at a Mumbai PNB branch over several years.

Indian authorities have arrested 20 people, and a court has issued non-bailable warrants against jewellers Nirav Modi and his uncle Mehul Choksi.

The duo have denied the allegations against them, and authorities say they both left the country before the fraud was uncovered.

“We are examining every aspect of it, and if we find others involved we will not spare them,” said PNB CEO Sunil Mehta, in his first interview with a foreign news outlet since the fraud was uncovered.

PNB has so far suspended 21 officials and Mehta said the bank was carrying out an investigation to find out how the fraud – the biggest in Indian banking history – went unnoticed for more than half a decade.

Several experts have also questioned the failure of external auditors approved by India’s central bank – known as statutory auditors – to detect the illegalities. These firms often only do top line reviews, not in-depth inspections.

“I don’t blame them. They come only for a short period of time and they go and basically see data only on the CBS,” said Mehta, referring to PNB’s core banking software. — Reuters