The reported PNB fraud went unnoticed because payment messages sent through SWIFT could be issued without matching entries in the bank’s core banking or accounting system. That gap could keep the resulting liabilities out of ordinary records and reconciliation. Punjab National Bank told the Government of India that the activity had been going on since 2011 and that it detected the matter in the third week of January 2018.
What happened in the PNB scam?
The reported scheme involved fraudulent Letters of Undertaking (LoUs) and Foreign Letters of Credit used to support payments for import bills. An LoU is a bank undertaking that can support credit for an import payment. In this case, the reported instruments exposed PNB to obligations that were not properly recorded in its ordinary banking systems.
The case is commonly associated with diamond merchants Nirav Modi and Mehul Choksi. The precise details of how particular LoUs were issued appear in official reports and court records as allegations or as submissions by parties; they should not all be treated as findings finally established by a court.
How could the messages bypass the bank’s records?
SWIFT messages and core banking records served different purposes
SWIFT is a system banks use to send financial messages. A bank’s core banking solution (CBS) and accounting systems hold its internal transaction and liability records. In the reported control failure, SWIFT messages could be sent without corresponding entries in PNB’s CBS or accounting records. A message could therefore communicate or support a payment obligation without that obligation appearing where routine internal checks would normally look for it.
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Authorization and supporting paperwork were also in question
A later Delhi High Court record recounts allegations and parties’ submissions that LoUs were issued through SWIFT without required approvals, applications or supporting documents, and without entries in CBS. These are procedural-record accounts of claims, not a basis for treating every described detail as a final judicial finding.
Reconciliation and inspection did not expose the activity
If a message created an obligation but the bank’s internal records did not show it, reports drawn from those records could understate exposure. Reconciliation of accounts held with other banks, including Nostro accounts, should help identify differences between a bank’s records and external transactions. PNB told the government that its inspection audit team did not detect the activity during the period from 2011 until discovery in January 2018. That account establishes the reported audit gap; it does not by itself establish what every employee, manager, auditor or regulator knew.
Why is the headline amount not one settled figure?
“Rs 11,000 crore” was early headline shorthand. Government replies reported different totals on different dates as additional amounts were reported. These figures are dated official reports, not a final court-determined loss.
| Government source and date | Reported amount | What it describes |
|---|---|---|
| Lok Sabha answer, 2018 | ₹12,645.97 crore | Fraudulent LoUs and Foreign Letters of Credit reported by PNB. |
| Rajya Sabha answer, 4 April 2018 | ₹13,923.14 crore | Reported amount including an additional report dated 22 February 2018 for ₹1,251.96 crore. |
The two totals reflect different official reporting snapshots and should not be combined or presented as interchangeable measures of a final loss.
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What did PNB and the government say about detection?
In a written reply on 12 February 2019, Minister of State for Finance Shiv Pratap Shukla relayed PNB’s account that the incident had not come to the bank inspection audit team’s notice while it was ongoing from 2011, and that it was detected in the third week of January 2018. The reply said the bank initiated an investigation and reported the fraud to RBI shortly afterward. This is PNB’s account conveyed by the government, not an independent audit finding reproduced in the reply.
The government also described steps intended to close the control gap. Its 2019 reply summarized an RBI circular issued to banks in February 2018 calling for straight-through processing between core banking or accounting systems and SWIFT, time-based restrictions in SWIFT, regular log reviews and reconciliation. A separate government answer called on banks to ensure valid approvals and documents, record all LoUs and SWIFT messages in their systems, and scrutinize and reconcile Nostro accounts.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What investigations and enforcement actions were reported?
The Lok Sabha answer reported that the CBI had registered two cases and that 18 people had been arrested as of 6 March 2018. The arrest count is a dated snapshot, not a finding of guilt. The same answer reported Enforcement Directorate money-laundering cases, searches and asset actions, and an SFIO investigation ordered into 107 companies and seven LLPs associated with the Nirav Modi and Mehul Choksi groups.
A later Ministry of Finance reply said PNB reported the incident to RBI after detection, filed FIRs with the CBI, and submitted complaints to the ED and the Ministry of Corporate Affairs. Those reports describe actions and status at the time; the official materials cited here do not establish the final outcome of every criminal, extradition or recovery proceeding.
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What is the main lesson from the control failure?
The failure was not simply that a bank used electronic messaging. The vulnerability was that a message channel and the bank’s accounting record could diverge, while authorization, supporting-document checks, log review and account reconciliation did not reliably catch the gap. Connecting systems so messages and accounting entries are recorded together, and reviewing exceptions across the full control chain, are the kinds of safeguards the government said banks were directed to strengthen.
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