Question

Question 1: Why are banks regulated and protected by government?

Question 2: In the past 3 years, briefly summarize one major Bank Fraud example?

Answer 1

Ans 1-Bank regulation is a form of government regulation which subjects bank to certain requirement s,restrictions and guidelines,designed to create market transparency between banking institutions and individuals and corporations with whom they conduct business,among other things.

The most important rationale for regulation in banking is to address concern over the safety and stability of financial institutions,the financial sector as a whole,and the payment system.The objective of financial regulators are usually :market confidence in the financial system.Financial stability contributing to the protection and enhancement stability of financial system.

Ans 2-One major bank fraud example-The Punjab National Bank Fraud Case relates to fraudulent letter of undertaking worth 11,356.84 core(US$1.4 billion) issued by the punjab national bank at its Brady House branch in Fort Mumbai.The fraud was allegedly organized by jeweller and designer Nirav Modi.Nirav his wife Ami modi ,brother NishalModi and uncle Mehul Choksi,all partners of firms,M/s Diamond R US,M/s Solar exports and M/s Stellar Diamonds,along with PNB officials and employees and director ofNirav Modi and MehulChoksi's firm have all been named in a charge sheet by the CBI.

The bank initially said that two of its employees at the branch were involved in the scam,as the bank's core banking system was by passed when current employees issued LOUs (letter of understanding)to overseas branches of other indian banks,including Allahabad bank,Axis bank and Union bank of india,Using the international financial communication system,SWIFT(society for worldwide interbank financial telecommunication).The transactions were noticed by new employee of the bank.The bank then complained to the CBI.On a later date,CBI named Usha Ananthasubramanian,former CEO of PNB ,executive directors KV Brahmaji Rao and Sanjiv Sharan in a chargesheet holding them responsible for failure to implement several circular and caution notices issued by the RBI regarding the reconciliation of SWIFT massages and core banking system.

Investigation-PNB alleges associates of three firm-Diamond R US,M/sSolarExports and M/s Stellar Diamonds-approached PNB on 16 january 2018 ,with a request for LoUs(letter of understanding) to make payment to its overseas suppliers.The bank demanded at least 100% cash margin for issuing LoUs,but the firm contested that they had received LoUs without any such guarantee in the past.Branch records did not show any such facility having been granted to the firms,PNB suspected fraud and began digging into transaction history.On 29 January 2018,PNB filled a complaint with the CBI,wherein it was alleged that Nirav,Ami Modi,Nishal Modi and Mehul Choksi,all partners of M/sDiamond R US,M/s Solar Exports and M/s Stellar Diamonds,in collusion with two bank officals committed the offence of cheating against PNB and caused a wrongful loss. The PNB official in his complaint informed the agency that at the bank"s branchoffice at Brady house infort ,Mumbai,the two of its employees,Gkulnath shetty,retired deputy manager of PNB and another bank offical Manoj kharat issued fraudulent LoUs to Hongkong based creditors on behalf of three firms associated with Nirav modi and Gitanjali group.The public servants committed abuse to official position to cause pecuniary advantage to diamond R US,Solar Exports,and Stellar diamonds and worngful loss of Rs.280.70 crore to PNB during 2017 said first FRI filled by CBI.

As of 18 may 2018 the scam ballooned Rs.14356.84 crore ,Nirav modi hiding in London ,on a fake passport.

On 13 june 2018 CBI approached the interpol to issued a red corner noticed (RNC)against Nirav modi"s brother nishal and one of his executive,his uncleMehul Choksi of the Gitanjali group.

On 20 august 2018 ,former MD and CEO of Allahbad bank,Usha Ananthasubramanian was granted bail on a surety bond Rs1 lakhs by special CBI coury by mumbai.

On7 september 2018 PNB fraud Nitin shahi filled application to CBI as an additional accused in the case.

The CBI registered a disproportionate against a retired deputy manager of PNB ,Gokulnath shetty ,a key accused ,for allegedly amassing wealth 200% more than his known source of income.