MUMBAI - Senior executives at Punjab National Bank misled the Reserve Bank of India (RBI) in late 2016 over the lender's handling of the financial messaging system and credit guarantees that were at the centre of a more than $2 billion fraud, the Central Bureau of Investigation (CBI) alleged in a charge sheet filed in court.
PNB, India's second-largest state-run bank, said earlier this year that two jewellery groups headed by Nirav Modi and his uncle Mehul Choksi had defrauded it of about $2.2 billion by raising credit from overseas branches of other Indian banks using illegal guarantees issued by rogue PNB staff at a Mumbai branch over several years.
The PNB staff allegedly did not make note of the fake guarantees sent via the SWIFT financial messaging system in the bank's core accounting software, leading to the fraud remaining undetected for years.
In 2016, after separate incidents of misuse of the SWIFT system elsewhere, the RBI had repeatedly cautioned all banks, including PNB, and had sought details from the banks on their compliance with required cyber security controls.
Former PNB Chief Executive Usha Ananthasubramanian; two of the bank's executive directors - K.V. Brahmaji Rao and Sanjiv Sharan - and a general manager did not take "any meaningful corrective measures" on the RBI notices, the CBI said in the charge sheet, filed last week in the City Civil and Session Court, Mumbai.
The accused PNB General Manager, Nehal Ahad, "prepared a misleading reply" to RBI questions in October 2016 specific to SWIFT and measures in place for issuing letters of undertaking and letters of credit - forms of credit guarantees at the heart of the fraud - according to the police charge sheet, a copy of which was seen by Reuters on Monday.
The questions had been "dealt by" all four officials and Sharan had approved the reply which said outward messages on SWIFT were being sent only after entries in the core accounting software were made, police said.
The CBI also said that senior executives of Nirav Modi's group had met Ananthasubramanian "to continue with the credit facilities to the group entities", without saying when the meetings took place.
Ananthasubramanian, Rao, Sharan and Ahad are among 22 people and three firms that have been charged by police in India's biggest bank fraud case. The defendants face charges of criminal conspiracy, cheating and dishonesty and criminal breach of trust by a public servant.
Ananthasubramanian, Rao and Sharan did not reply to calls and messages to their mobile phones seeking comment, while Ahad could not immediately be reached.
Ananthasubramanian, who headed PNB until May last year, was the chief executive of another state-run lender Allahabad Bank until the police charges were filed last week. Allahabad Bank relieved her of her position after the police charges.
PNB has also relieved the two executive directors, Rao and Sharan, of their duties. The executives have not commented on the charges yet.
Modi and Choksi, who are out of India, have denied any wrongdoing. Their lawyers could not immediately be reached.