India banks must link core systems with SWIFT

Central bank has moved to tighten regulations in the wake of the alleged $1.8b fraud at PNB

India’s central bank has asked commercial lenders to link their core software with the SWIFT interbank messaging system by the end of April, bankers said, in the latest regulatory action after a $1.8 billion fraud at Punjab National Bank (PNB).

In what has been dubbed the biggest fraud in the country’s banking history, India’s No. 2 state-run lender PNB has accused two junior employees at a Mumbai branch of colluding with companies linked to billionaire jeweller Nirav Modi and his uncle, Mehul Choksi, to obtain fraudulent loans.

PNB says the fraud began as early as 2011 and remained undetected as the staff did not enter the transactions into its core The Institute of Chartered Accountants of India (ICAI), a state-controlled regulator for the sector, has said it is probing whether auditors played a role in perpetrating the alleged fraud at PNB.

The ICAI said on Thursday it has asked the Securities and Exchange Board of India, PNB and federal investigating agencies to share their findings about the alleged fraud, including anything related to the involvement of any chartered accountants.

The ICAI also said it had set up a panel to study the systemic lapses that contributed to the fraud and to suggest remedies. software after sending instructions to overseas banks using SWIFT.

Brussels-based SWIFT has said it does not comment on individual customers.

Many Indian banks, including PNB, have not linked their core banking system with the SWIFT network, which is widely used by global banks to communicate with each other on transactions.

The Reserve Bank of India (RBI), which supervises lenders, has moved to tighten regulations in the wake of the alleged fraud. In a letter to banks last week, the RBI set out more than two dozen checkpoints it asked them to comply with within set timelines, according to a source with direct knowledge.

That list included connecting their core banking software to SWIFT by April 30, the source said.

Asked to confirm whether such a letter had been sent, Usha Ananthasubramanian, chief executive of state-run Allahabad Bank who also heads the Indian Banks’ Association, replied: “Correct”. “That is an outer limit, but today the urgency is such that maybe I’ll shelve one project and step into this and tell my vendor to fast-track this,” she told media on the sidelines of an industry event yesterday, referring to Allahabad Bank’s plans.

The first source said other checkpoints that banks have been asked to comply with included setting a limit on payment instructions on SWIFT where the beneficiaries were individuals, and putting an additional layer of security on transactions beyond a certain threshold.

Most of the checkpoints prescribed by the RBI would have to be complied with immediately, the source said, with the deadlines for the remainder ranging from the end of March to the end of June.

The RBI did not immediately respond to an email seeking comment.