Indian police target PNB Mumbai branch auditors in $2bn fraud probe

People wait in a queue outside a Punjab National Bank ATM in New Delhi, India, Feb. 16, 2018. (Reuters)
Updated 01 March 2018
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Indian police target PNB Mumbai branch auditors in $2bn fraud probe

MUMBAI: Federal police in India on Thursday told a court an internal auditor at a Mumbai branch of Punjab National Bank conspired with other officials to carry out a $2 billion fraud at the country’s second-biggest state lender.
The Central Bureau of Investigation (CBI) on Wednesday arrested auditor Mohinder Kumar Sharma, widening its probe into the biggest bank fraud in India’s history. On Thursday it accused Sharma of conspiracy in a filing to a Mumbai court, which committed him to police custody until Mar. 13.
CBI also arrested a former PNB manager, Bishnubrata Mishra, who it said was responsible for audits at the same branch between 2011 and 2015. Mishra could not immediately be contacted for comment.
CBI has so far arrested at least 14 people, eight from the bank and six from companies owned by billionaire jeweller Nirav Modi and his uncle, Mehul Choksi, who owns Gitanjali Gems Ltd. .
Modi and Choksi have been accused of colluding with Punjab National Bank (PNB) officials to secure unauthorized loans between 2011 and 2017, mostly from the overseas branches of Indian state banks. They left India in January before the fraud was unearthed, but have denied the charges through letters and statements.
Sharma was the internal chief auditor at the Brady House branch “who was supposed to verify the daily transactions, report the irregularities and ensure that the same are rectified to protect the interest of the bank,” CBI Inspector D. Damodaran said in the court filing.
But he, “in conspiracy with other co-accused persons, deliberately ignored to point out the issuance of illegal” letters of undertaking (LOUs) for companies owned by Modi and Choksi to raise loans from other banks, the inspector added.
Sharma’s lawyer Apoorv Vijay Singh told the court his client “had no opportunity to know about the messages” sent on international payments platform SWIFT by other bank officials as he did not have access to SWIFT.
PNB has accused two low-level employees of the Brady House branch — where Sharma also worked — of issuing the LOUs without making corresponding entries in the bank’s main software, helping the fraud go undetected for years.
Finance Minister Arun Jaitley told reporters on Thursday evening the cabinet has approved the establishment of an independent regulator for auditors in the country. The cabinet also decided to present a bill in parliament aimed at making it easier to seize properties of “fugitive economic offenders.”
“We can’t allow people to make a mockery of the law,” Jaitley said.
Buyers for Modi firm
A bankruptcy court filing in New York on Wednesday showed interest from potential buyers of a US firm of Modi’s that filed for creditor protection in the United States on Feb. 26, after the CBI seized assets of other companies owned by the jeweller.
“Early expressions of interest in purchasing some or all of the debtors’ business operations have been strong,” Modi’s Firestar Diamond Inc. said in the filing.
It has also told secured lenders it was in discussions with lenders for debtor-in-possession financing as it weighed options.
Firestar Diamond and its affiliates had annual sales of around $90 million, it said, adding that the assets seized included factories in India that produced fine jewelry.
The company is a wholly owned subsidiary of Firestar Group, which in turn is wholly owned by Synergies Corp. Both are Delaware incorporated.
Synergies is in turn wholly owned by Firestar Holdings Ltd, a Hong Kong corporation itself wholly owned by Modi’s Indian company Firestar International Ltd, according to the court filing.
Separately, an Indian agency that targets offenses involving foreign exchange and money laundering said on Thursday it had seized 41 properties, worth about 12 billion rupees ($184 million) belonging to Choksi and companies he controls.
Bank consolidation
Stung by criticism of a slippage in the government’s management of state-run banks, the finance ministry has announced a series of measures, including setting banks a 15-day deadline to kick off action to improve risk oversight.
On Thursday the ministry said state-run banks would consolidate 35 overseas operations, with another 69 being considered for consolidation. The term operations covers bank branches, joint ventures, subsidiaries, remittance centers and representative offices.
Following the discovery of the alleged fraud, several bankers told Reuters there was a need to prune the overseas branches of state-run banks and rein in competition that sometimes leads to lax monitoring of transactions.
“PSBs to consolidate 35 overseas operations without affecting international presence of PSBs in these countries,” finance ministry official Rajeev Kumar said in a Twitter message, using an acronym for public-sector banks, as India describes its state-run banks.
“Sixty-nine operations identified for further examination,” he added, without naming the banks or the affected operations.


Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 21 June 2018
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Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.