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CVC had raised alarm a year before Nirav Modi-Mehul Choksi scam broke

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NEW DELHI: A year before the Rs 13,600 crore Nirav Modi-Mehul Choksi bank scam came to light, the Central Vigilance Commission (CVC) had sounded an alarm over irregularities in the gems and jewellery sector .

CVC’s annual report for 2017 says the commision held a meeting on January 5, 2017 with senior officials of the CBI and Enforcement Directorate, and chief vigilance officers of 10 banks, including Punjab National Bank (PNB), to discuss serious irregularities in the accounts of some jewellery firms, particularly those of Jatin Mehta’s Winsome group.

PNB has been left grappling with the Nirav Modi-Mehul Choksi scam after the duo, in collusion with some bank officials, illegally renewed letters of undertaking. Modi and Choksi left India with their families in the first week of January this year and a case was registered against them soon after. The CVC report puts the focus on lapses on part of PNB’s senior management.

Chief vigilance commissioner K V Chowdary told TOI, “That meeting was called to particularly discuss frauds committed on banks by Jatin Mehta of Winsome group.” The meeting also discussed several issues related to frauds by other jewellery firms, loopholes in the banking system, enquiry procedures by CVOs, borrowers’ accounts and gold import.

PNB

The Modi-Choksi fraud had not been discovered then but PNB was the lead bank in one of the loans given to Mehta as well. The bank reportedly had an exposure of Rs 1,658 crore with Mehta, who is now said to be living in St Kitts. In all, Mehta fled after taking loans of Rs 6,200 crore.

Senior government officials said that PNB, which was already a victim of fraud, should have checked its accounts relating to the sector more carefully and this might have put the focus on Modi and Choksi’s companies. “Had PNB had done that, the two might have been held,” a CBI officer said.

The CVC had also advised the Reserve Bank of India as well as the department of financial services (DFS), which comes under the finance ministry, to issue an advisory to banks to ensure control over forex remittances purportedly for the purpose of imports and that banks should have specific standard operating procedures (SOPs).

The CVC report said it had been dealing with issues related to the core banking system, which was not updated by PNB officials in the case of loans given to Modi and Choksi, human resource management systems (HRMS) and projects of development of IT infrastructure in the banking sector.

Concerned with the problems, the CVC had recommended systematic improvements in the banking sector last year.

The commission had noticed irregularities in import transactions such as non-compliance of Know Your Customer/Anti-Money Laundering (KYC/AML) guidelines while opening of account, absence of due diligence on the Indian importer as well as the overseas supplier, violation of bank’s guidelines and breaching the limit of advance remittances several times which was exploited by borrowers.

The CVC observed while examining a case that KYC documents, proof of income and other documents submitted by the borrower were forged while pre-sanction survey conducted by an independent outside agency appointed by the bank was also improper. The commission observed that “there is no uniformity in the banking sector” on the issue of appointment of outside agencies.

The CVC also asked for an appropriate system for valuation of properties offered as security, particularly those registered recently, and valuation of these properties as per their registered price. The commission had advised top public sector banks to open their own training schools for staff.

Updated: April 8, 2018 — 6:51 pm

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