The Punjab National Bank (PNB) has decided to honour LoUs worth Rs 6,500 crore, issued fraudulently to 7 lenders in favour of Nirav Modi and associates in connivance with bank officials.
Putting an end to confusion over the payment obligation towards other lenders, PNB also assured that it will honour all subsequent maturing LoUs and FLCs as and when they are due.
The decision was taken by the board for the payment related to Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) issued by the bank which matures on or before March 31, 2018, PNB said in a statement.
"This will lead to settling of LoUs worth Rs 6,500 crore with 7 banks in relation to the recent fraud that was reported by the bank," it said.
The statement reiterated that when the fraud was detected and reported to the authorities by PNB, the bank had communicated that it has a strong balance sheet to meet any contingent liabilities upon the bank.
This measure will ensure that India's banking system at large has the least possible disruption owing to the unfortunate fraud and banking operations will continue to function smoothly, it said after the board meeting.
"In essence, PNB stood by its commitment to honour all bonafide LoUs. This decision of the board sends out a strong message that PNB takes its obligations seriously but does it in a manner that is compliant with the law," the bank chairman Sunil Mehta said.
"PNB board's decision will help restore confidence and stability in the larger banking system. We thank all stakeholders who have supported us during this difficult time," it said.
Billionaire jeweller designer Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated the PNB of Rs 12,968 crore through fraudulent Letters of Undertaking (LoUs).
A Mumbai branch of PNB had issued as many as 1,590 LoUs fraudulently for the group of companies belonging to Nirav Modi since March 2011.
Different investigating agencies, including CBI and Enforcement Directorate, are probing the fraud, dubbed as the biggest banking scam in the country.
The bank's board also reviewed the progress made on strengthening the SWIFT operating environment in the bank, it said.
The first phase of SWIFT integration with CBS will become operational from the first working day of the new financial year for the bank, April 3 2018. The complete integration will be achieved ahead of the April 30th deadline stipulated by the Reserve Bank of India for all banks, it added.
The successful integration will be achieved in a record time because of the upgradation of the bank's Core Banking System (CBS) to Finacle 10 across the 7,000 PNB branches. This was completed as of January 26 this year.
One of the strong features of this version is that it integrates seamlessly with multiple other systems within the bank. The upgradation from Finacle 7 to Finacle 10 and subsequent integration with the SWIFT link ensures a robust architecture and operational control to minimize any lapses and weaknesses in the future.
It further said that "the board is taking every possible step to restore morale, motivation and pride back to all its 70,000 employees".
The bank is not afraid of taking tough action where required, it said, adding that it is committed to building a strong partnership with customer service and excellence.