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India instructs banks to link their core systems with SWIFT after huge fraud

India instructs banks to link their core systems with SWIFT after huge fraud

MUMBAI: India’s central bank has asked commercial lenders to link their core software with the SWIFT interbank messaging system by the end of April, bankers said, in the latest regulatory action after a $1.8 billion fraud at Punjab National Bank (PNB).

In what has been dubbed the biggest fraud in the country’s banking history, India’s number two state-run lender PNB has accused two junior employees at a Mumbai branch of colluding with companies linked to billionaire jeweller Nirav Modi and his uncle, Mehul Choksi, to obtain fraudulent loans.

The bank alleges the employees issued unauthorised letters of undertaking that the firms used to get credit from overseas branches of other, mostly Indian banks.




A lawyer for Modi has denied his client was involved in any fraud. Choksi has not commented but his firm, Gitanjali Gems , has also denied involvement in the alleged fraud.

PNB says the fraud began as early as 2011 and remained undetected as the staff did not enter the transactions into its core software after sending instructions to overseas banks using SWIFT.

Brussels-based SWIFT has said it does not comment on individual customers.

Many Indian banks, including PNB, have not linked their core banking system with the SWIFT network, which is widely used by global banks to communicate with each other on transactions.

The Reserve Bank of India (RBI), which supervises lenders, has moved to tighten regulations in the wake of the alleged fraud. In a letter to banks this week, the RBI set out more than two dozen checkpoints it asked them to comply with within set timelines, according to a source with direct knowledge.

That list included connecting their core banking software to SWIFT by April 30, the source said.

Asked to confirm whether such a letter had been sent Usha Anan­thasubramanian, chief executive of state-run Allahabad Bank who also heads the Indian Banks’ Association, replied: “Correct”.

“That is an outer limit, but today the urgency is such that maybe I’ll shelve one project and step into this and tell my vendor to fasttrack this,” she told media on the sidelines of an industry event on Friday, referring to Allahabad Bank’s plans.

The first source said other checkpoints that banks have been asked to comply with included setting a limit on payment instructions on SWIFT where the beneficiaries were individuals, and putting an additional layer of security on transactions beyond a certain threshold.

Most of the checkpoints prescribed by the RBI would have to be complied with immediately, the source said, with the deadlines for the remainder ranging from the end of March to the end of June.

The RBI did not immediately respond to an email seeking comment.

In a statement on Tuesday, the central bank said it “reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment.”

Published in Dawn, February 24th, 2018

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