CBI questions RBI officials in connection with PNB fraud

CBI is also looking into whether the 80:20 gold scheme introduced during the UPA regime has benefitted the firms of Nirav Modi and Mehul Choksi

The Central Bureau of Investigation (CBI) is questioning senior officials of the Reserve Bank of India (RBI) in connection with the ~130-billion fraud at Punjab National Bank (PNB). Simultaneously, their connection is also being probed over the 80:20 gold import scheme, which has allegedly benefitted firms of Nirav Modi and Mehul Choksi. Modi and Choksi are the primary accused in the PNB case.

According to senior officials of the agency, two general managers and one chief general manager of the Reserve Bank of India have been questioned over the past one week to ascertain whether the apex bank was aware of the letters of undertaking (LoUs) issued to Modi and Choksi.

“They were questioned to inspect whether there was a deliberate lack of auditing over the LoU granting process,” the official said. An LoU is a bank guarantee under which a bank allows its customer to raise money from another Indian bank’s foreign branch in the form of short-term credit. The loan is used to make payment to the customer’s offshore suppliers in foreign currency. The overseas bank usually lends to the importer, based on the LoU issued by the importer’s bank.

The CBI is also looking into the fact whether the 80:20 gold scheme introduced during the United Progressive Alliance regime has benefitted the firms of Modi and Choksi. In May 2014, the RBI issued a circular allowing the import of gold by private parties who had not even catered to exporters of gold, to import gold. Union Minister Ravi Shankar Prasad has alleged that the scheme benefitted the firms of Choksi and Modi.

Earlier, Central Vigilance Commissioner K V Chowdary had blamed the RBI’s lack of audit for the scam. “To determine risk, they must have some parameters, based on which they would have done the auditing. But there was no apparent audit by the RBI during this period (of fraud),” he said.

Two PNB employees at its Brady House branch in Mumbai fraudulently issued LoUs on behalf of the companies involved to foreign branches of Indian banks, including those of State Bank of India, Bank of India, UCO Bank, Canara Bank, and Allahabad Bank, among others. The LoUs were allegedly issued to import pearls.

PNB had told the CBI in its complaint that the foreign branches of other banks did not do due diligence before depositing money into PNB’s overseas accounts, which was then transferred to the suppliers of the Modi and Choksi group of companies.