Investigators in India are questioning four senior central bank officials as part of its investigation into the $2 billion fraud case at Punjab National Bank (PNB).
Reuters reported law enforcement in the country are interrogating three chief general managers at the Reserve Bank of India (RBI) and a general manager over the fraud at PNB, which is state-run. Two sources with knowledge on the meetings between RBI and investigators told Reuters the central bank officials were asked to explain how the banking process works — not because police think the central bank officials did anything wrong. RBI has been facing a lot of criticism because it wasn’t able to detect the fraud, which had been going on for a while. The regulator said in its defense that it has “very limited authority” over state-run banks, reported Reuters, noting RBI has asked for more power to police state-run lenders.
In February, PNB filed an official complaint with the Central Bureau of Investigation accusing Nirav Modi, the famed jeweler, of using a series of fraudulent shell companies to snap up PNB guarantees worth 100 billion rupees ($1.6 billion). Those funds appear to have been used to receive more loans from abroad, according to sources who requested to remain anonymous. The bank further alleges Modi took advantage of the inexperience of junior banking personnel to receive the letters. A case has already been filed against him by PNB claiming he was behind 2.8 billion rupees in fraud and noting the financial institution would check to see if the impact ran deeper. The complaint alleges Modi — aided by his wife, brother and “other unknown persons” — sought and obtained letters of understanding from PNB in 2010 without following due procedure. Modi claimed the funds were used to pay import bills, but PNB alleges the funds were used for other unspecified purposes.