Know how the country’s biggest banking fraud? Ketan Parikh fraud remembered
Know how the big scandal was executed despite the strict rules of the RBI
On Thursday, the country’s biggest banking fraud was curtaile when Punjab National Bank informed the stock exchange about fake transactions of 1771.17 million dollars (about Rs 11,000 crore) in the Mumbai branch. After this news, on the one hand, there was a stir in the finance ministry, and on the other hand, other government banks started screaming about it. Now the question arises that finally, how was the scandal execute under the nose of the RBI, such as the strict regulator and top officials of the bank?
To understand this whole scam, it is important to know that what is Letter or Undertaking ie Lou? And when does it need?
Letter of the undertaking is issue by the international branch of an international bank or any Indian bank. On the basis of this letter, the banks provide short-term loans of 90 to 180 days to the companies. Based on this letter, any company can withdraw funds in any part of the world. It is use mostly by importing companies for overseas payments. Letter of the undertaking is given to any company on the basis of the Letter of Comfort. Letter of Comfort Company is issue by the local bank.
Then how did scandal happen?
This letter has been use only in the Punjab National Bank scam. Jewellery designer Neerav Modi secured the fake letter of undertaking from Punjab National Bank on the basis of his firm. The fake because the bank did not have the required margin money for this interchange. After the release, the information of these LoUs was sent to all the place via swift code messaging. These Los roasted Nirav Modi with foreign government and private bank branches abroad. The amount of the discount was about Rs. 11000 crores.
How to open fraud?
Like the pay order, these letter of credits is also offer for payments in the banks where the letter of relief is issue, if they do not pay by the company. When PNB came for the letter of undertaking, the bank expressed its inability to pay them. After this, the whole case was reveale.
There was also a case in Ketan Parikh case
Something similar happened in the banking scandal in 2001. Ketan Parekh had raised the advantage of this system’s system in 2001. At that time, the Madhavpura Mercantile Co-operative Bank had issued Letter of Undertaking from time to time to KP Entities, Ketan Parekh, without any security and marginal money. Ketan Parikh used to use this money to invest money in the stock market. It was just before dot-com bubble when the stock market was at record highs. Like the PNB, Madhavpura Mercantile Co-operative Bank, at that time, expressed its inability to pay the Letter of Undertaking, after which the scam came up.