RBI May Impose Penalty

The central bank is likely to ask Punjab National Bank (PNB) to make good the ₹11,300 crore that other banks in Hong Kong gave to ‘overseas suppliers’ of its Indian diamantaire customers based on its letters of undertaking (LoUs).

Further, the central bank may impose stiff monetary penalties on the public sector bank in view of fraudulent and unauthorised transactions coming to light at one of its branches in Mumbai.

PNB’s complaint for registration of first information report against accused persons for having committed offences of cheating and fraud, thereby causing a loss to banks, mentioned that two branch officials from the mid-corporate branch at Brady House, Mumbai, issued LoUs in favour of Allahabad Bank and Axis Bank in Hong Kong.

Besides Allahabad Bank and Axis Bank, Union Bank of India, Canara Bank, Bank of India, State Bank of India, and a foreign bank are believed to have financed transactions in Hong Kong against LoUs issued by PNB. Despite PNB’s contention that none of the overseas branches of India based banks had shared with it any document/information made available to them by the Indian diamantaire customers at the time of availing buyers’ credit from them, bankers’ say the regulator is unlikely to be convinced with this argument. In all probability, the bank may be asked to pay up.

PNB’s complaint

As per the complaint filed by PNB with CBI, two officials at its Brady House branch had fraudulently issued LoUs for and on behalf of a set of partnership firms — Diamond R US, Solar Exports, and Stellar Diamonds — without following the prescribed procedure. These officials obtained required request applications, documents and approval of the authorities thereto and did not make entries in the bank’s system, thereby avoiding detection of the transactions so made.

PNB said “the funds so raised for payment of import bills have not been utilised for such purposes in many cases.”