No direction given to PNB on payment, says RBI

New Delhi: RBI on Friday denied that it has asked PNB to meet its commitments under the Letter of Undertaking (LOU) to other banks.

RBI said that the fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls.

This may mean that PNB can deny to pay other banks claiming that they did not do due diligence while transferring money to Mr Modi on account of fake LoUs.

In a letter to other banks, PNB alleged that foreign branches of other Indian banks may also be involved in the fraud.

“There is clear criminal connivance of the group companies of Nirav Modi and Gitanjali Gems with our branch official and also, apparently, with officials of overseas branches of Indian banks,” said PNB in the letter.

This is because Letter of Undertaking (LoUs) were opened by Modi and his associates in favour of overseas branches of Indian banks for import of pearls for a period of one year, for which as per RBI guidelines the total time period is 90 days from the date of shipment. “This stipulation was overlooked by overseas branches of Indian banks, who are also required to follow RBI guidelines,” it said. 

The fraud happened as letters of undertaking were issued fraudulently by a PNB official to billionaire diamond merchant Nirav Modi and associates