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Pnb Business Ethics

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 MBA FULL-TIME (2019-2021)

Business Ethics

Individual Assignment

on

PNB SCAM

Submitted by: Submitted to:

Princejeet Singh (191136) Dr. Trilok Sharma

Date of Submission: 3rd September


PNB Scam

Introduction:

Punjab National Bank was established in 1894 by Dayal Singh Majithia. Its headquarters is in New Delhi. It is a public sector company providing banking and financial services. The second largest PSU Bank in India on 14th February, 2018 have reported fraudulent and unlawful transactions worth Rs 11,400 crore to the government and law enforcement agencies. The scam which initially was estimated to be worth 11,400 crores, was added up to Rs 12,600 crores which was approximately one-third of the net worth of the bank. This bank scam is now referred to be the country’s biggest banking scandal. At the time when government was planning to recapitalize the Indian banks, PNB Scam comes as huge disaster for the Indian economy.

The protagonist of this scam is Mr. Nirav modi who along with his wife Ami Modi, Uncle Mehul Choksi and brother Nishal Modi carried out this heist. The whole scam was initiated from one of the Mumbai’s branch where this was carried out by some of the bank employees and jewellery business tycoon Nirav Modi. They started this fraudulent practises back in 2011, and in the same year PNB issued letters of undertaking (LoUs) to few overseas and foreign branches of Indian banks such as Axis bank and Allahabad bank for him. He borrowed this money from the overseas bank to purchase pearls and diamonds from the foreign markets and import it to India. The overseas branch provided him with the loans in return for the LoUs from Punjab National Bank since 2011 to 2017 because each letter of undertaking had a fixed expiry date. The bank had issued LoUs worth the value of 12,600 crores to Nirav Modi and Mehul Choski’s group of companies.

Now both of them were left with two options: either to come back and payback the loans along with interest to the foreign branch or to take another fresh loan so that they could cover previous loan as well as the interest. This cycle continued till 2017. Thus, the total liability added up to 12,600 crores. They took advantage of the fact that SWIFT (Society for Worldwide


Interbank Financial Telecommunication), through which they communicated with foreign branches, PNB’s core banking solutions was not integrated with it. The LoUs sent through Swift was not recorded on core banking solutions. This flaw was exploited by Nirav Modi and Mehul Choski to execute India’s biggest banking Scam.

The PNB scandal reflects the failure of institutional controls and oversight mechanisms. The correctives must emerge from a strong enforcement of ethical standards of institutional behaviour.

Analysis of the Scam:

5W2H is a quality management tool taken in this case for the analysis of this scam. It stands for Who, When, What, Where, Why, How many and How much. This tool of analysis would give us an in-depth information about the huge scam.

5W2H of the PNB SCAM What?

What happened?

Punjab National Bank on 14th Febuary,2018 reported fraudulent and unlawful transactions worth Rs 11,400 crore at one of its Mumbai’s branch to the government and law enforcement agencies. The scam which initially was estimated to be worth 11,400 crores, was added up to Rs 12,600 crores which was approximately one-third of the net worth of the bank. The bank had complained to Central Bureau of Investigation about the incident, and named the people and firm associated with Billionaire jeweller Nirav Modi who caused this massive heist.

What is the scope of the problems?

PNB is now left holding bank guarantees worth Rs 11,400 crores, which they needed to pay to other banks such as State Bank of India, Allahabad Bank and Union Bank. The payments were due over the next few months.

This had a huge impact on the banking sector, jewellery sector, stock exchange.

This scam questioned the credibility of public sector banks, and the role of regulators like RBI and SEBI.

When?

When did it happen?

PNB lodged a complaint against Modi group firms with RBI on 29th January, 2018.

On 4th February, CBI issued look out notice against Nirav Modi.

On 14th February, PNB declared about the magnitude of the fraudulent transactions to the stock exchanges and the lawful agencies.

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