Divulging India Biggest Buyers Credit Scam

Buyers Credit is a short-term loan available to an importer from Foreign Lender’s at low interest rates. There has been breach committed in the issuance of Letter of Undertaking (LOU’s) in the process. This funding facility which has been used fraudulently is leading to problematic situations to the Indian importers.   What went wrong –PNB Scam? Two of the Punjab National Banks (Mumbai) employees were issuing Fake LOU details favoring Nirav Modi group of companies, there by giving birth to one of the biggest scam of $1.77Bn in Buyers Credit history in India. Since LOU’s are considered to be most authentic bank to bank communication, lending bank’s too did not bother to do additional due diligence on LOU’s issued by Punjab National Bank. Banks, which are affected? Union Bank Axis Bank Allahabad Bank. Do remember these are all Indian Banks housed in foreign locations, which funded PNB India basis LOU issued. How it was executed? It started with Modi’s diamond firms which approached Punjab National Bank for Buyers credit requirement for the import of diamonds . As per process companies availing buyers credit should have Buyers Credit limits with LOU Issuing bank, which in this was PNB. Limits should be lien marked for issuance of LOU to lending bank. Where as in this case employees of PNB issued fake LOU’s without performing necessary checks and banking formalities (Obviously to benefit Modi’s firm).  Basis these fake LOU’s foreign branches of Indian banks extend loans to PNB India Nostro account & from Nostro these funds were remitted to Exporter. Exporter’s in this case were either kith and kins or close business associated of Nirav Modi or his own companies in different countries. Thus resulting in one of the biggest scam of Buyers Credit history. PNB has reported this case to CBI (Central Bureau of Investigation) for further investigations, Meanwhile as a usual practice by all fraudster, Mr. Nirav Modi has also fled from India, Indian officials are still baffled how to ‘Find NiMo’ Impact of PNB Scam on Importers in India Importers in India are facing challenges to avail Buyers Credit post unraveling of Buyers Credit Scam.  In spite of multiple foreign lenders available in market, getting a quote and offer letter has become a task. Most of them are either not quoting or are offering rates which are way beyond regular standards. We have tried listing down current issues faced by Importers In India Total No of foreign lenders/Banks offering quotes are reduced Time taken to offer quotes is increased Few of the LOU’s are cancelled in spite of issuance of offer letter Importers negotiation has come down as less no of lenders are available. Most of the banks are asking for B/L & invoice from LOU issuing bank official ID. Cost of funds for client will go up as he will have to use OD facility to make payment Double Whammy for Importers as Currency prices has also shot up by approx. 1.5% in couple of days. PNB bank Customer facing maximum challenges to have their LOU’s funded. This scam has questioned many compliance practices followed by Indian banks  & has resulted in lot of discomfort to the Importers . Case is been investigated by CBI officials and will surely lead to redefining entire process of Buyers Credit business in India.
Saurabh Jain
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Divulging India Biggest Buyers Credit Scam

Saurabh Jain
Blog
20th Feb, 2018
Divulging India Biggest Buyers Credit Scam

Buyers Credit is a short-term loan available to an importer from Foreign Lender’s at low interest rates. There has been breach committed in the issuance of Letter of Undertaking (LOU’s) in the process. This funding facility which has been used fraudulently is leading to problematic situations to the Indian importers.

 

LOU / Letter of undertakingWhat went wrong –PNB Scam?

Two of the Punjab National Banks (Mumbai) employees were issuing Fake LOU details favoring Nirav Modi group of companies, there by giving birth to one of the biggest scam of $1.77Bn in Buyers Credit history in India.

Since LOU’s are considered to be most authentic bank to bank communication, lending bank’s too did not bother to do additional due diligence on LOU’s issued by Punjab National Bank.

Banks, which are affected?

  1. Union Bank

  2. Axis Bank

  3. Allahabad Bank.

Do remember these are all Indian Banks housed in foreign locations, which funded PNB India basis LOU issued.

How it was executed?

It started with Modi’s diamond firms which approached Punjab National Bank for Buyers credit requirement for the import of diamonds . As per process companies availing buyers credit should have Buyers Credit limits with LOU Issuing bank, which in this was PNB. Limits should be lien marked for issuance of LOU to lending bank.

Where as in this case employees of PNB issued fake LOU’s without performing necessary checks and banking formalities (Obviously to benefit Modi’s firm).  Basis these fake LOU’s foreign branches of Indian banks extend loans to PNB India Nostro account & from Nostro these funds were remitted to Exporter.

Exporter’s in this case were either kith and kins or close business associated of Nirav Modi or his own companies in different countries.

Thus resulting in one of the biggest scam of Buyers Credit history.

PNB has reported this case to CBI (Central Bureau of Investigation) for further investigations, Meanwhile as a usual practice by all fraudster, Mr. Nirav Modi has also fled from India, Indian officials are still baffled how to ‘Find NiMo’

Impact of PNB Scam on Importers in India

Importers in India are facing challenges to avail Buyers Credit post unraveling of Buyers Credit Scam.  In spite of multiple foreign lenders available in market, getting a quote and offer letter has become a task. Most of them are either not quoting or are offering rates which are way beyond regular standards.

We have tried listing down current issues faced by Importers In India

  1. Total No of foreign lenders/Banks offering quotes are reduced

  2. Time taken to offer quotes is increased

  3. Few of the LOU’s are cancelled in spite of issuance of offer letter

  4. Importers negotiation has come down as less no of lenders are available.

  5. Most of the banks are asking for B/L & invoice from LOU issuing bank official ID.

  6. Cost of funds for client will go up as he will have to use OD facility to make payment

  7. Double Whammy for Importers as Currency prices has also shot up by approx. 1.5% in couple of days.

  8. PNB bank Customer facing maximum challenges to have their LOU’s funded.

This scam has questioned many compliance practices followed by Indian banks  & has resulted in lot of discomfort to the Importers . Case is been investigated by CBI officials and will surely lead to redefining entire process of Buyers Credit business in India.

Saurabh
Blog Author

 

One of the Co-founders, Saurabh serves as an active advisor to several SaveDesk’s portfolio companies and also works closely with them to improve business performance, select key management personnel, ensuring statutory and financial oversight and compliance supported by various agreements.Prior to SaveDesk, Saurabh spent seven years with Standard Chartered Bank commercial banking team as an associate director, where he was responsible for client management,financial analysis, portfolio management and large ticket deal’s execution in South India. Saurabh holds an MBA in Marketing from the Institute of Technology Management, and graduated with Honors degree in Electrical and Electronics Engineering from RGPV, Madhya Pradesh

 

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