Page 297 - A Banker Down the Rabbit Hole

as he became a jeweller to the rich and famous. Many of India's biggest
business families have been buying diamonds from him for years.

Since 2014, a year after his debut in the Forbes billionaire list, Modi
has been under the scanner of law enforcement agencies-the Central
Bureau of Investigation (CBI) and Enforcement Directorate (ED) as well
as the income tax department for alleged illegal transactions and frauds.
In 2014, the Directorate of Revenue Intelligence (DRI) investigated him
for alleged diversion of imported, duty-free, cut and polished diamonds
and pearls to the domestic market. The DRI called it a violation of
import-export norms. Modi settled with the agency by paying dues,
penalty and interest.

Multiple causes of the fraud and what needs to be
done:

Most of the trade finance is done through bank guarantees and Letters
of Credit (LC), which require adequate surety or collateral. Even LOUs
should have been issued based on adequate collateral but this was
omitted willfully or possibly due to lack of training of the concerned
officers on credit appraisal for these types of non-fund based limits.
Non fund based loans do not involve immediate outgo of money. These
loans are commitments by the bank to pay to the beneficiary of a bank
guarantee, on demand unconditionally when so demanded at a later
date within the validity period of the guarantee. There is a probability
of some borrowers not reimbursing the bank after bank pays for the
commitment under its guarantee.

Certain disciplines such as centralized processing of SWIFT messages
only through CBS (Core Banking Solution Platform - ERP Software), were
not put in place. Unless these changes take place, it is difficult to prevent
recurrence of such incidences.

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