RBI denies asking PNB to meet LoU commitments to other banks

NEW DELHI: The Reserve Bank of India said it hasn’t asked Punjab National Bank to pay counterparty banks against the letters of undertaking (LoUs) that the lender issued to jeweller Nirav Modi and others.

“There have been reports in the media that in the wake of fraud involving a sum of $1.77 billion that has surfaced in Punjab National Bank (PNB), the Reserve Bank of India (RBI) has directed PNB to meet its commitments under the Letter of Undertaking (LOU) to other banks. RBI denies having given any such instructions,” the central bank said in a release posted on its website.

RBI said it has begun its assessment and will take action as needed.

“The fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls,” it said. “RBI has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action.”

ET had reported Friday that RBI told PNB to pay the money owed to counterparty banks in the alleged fraud. That was based on a top regulator at the level of executive director having told a meeting of bankers that there was “no way” that PNB can’t meet its obligations and that it has “to pay,” as cited by people present at the meeting.