RBI Asks Banks To Clarify On Gaps In SWIFT-Core Banking Coordination

The Reserve Bank of India has sought clarification from lenders for not integrating their core banking system with the SWIFT messaging network, two bankers in the know said.

The regulator, in a letter sent last week, asked bankers to explain why they had not linked all messaging types on SWIFT to their central IT system, according to the bankers who didn't wish to be identified. That comes four months after the April 30 deadline to ensure that all messages sent on the SWIFT network are recorded withthe core banking system ended.

The Economic Times first reported the story on Wednesday. BloombergQuint's emailed queries to the RBI remained unanswered.

In their response, bankers said they have managed to link all messages that lenders typically use for overseas and domestic transactions, first of the two bankers quoted above said, adding for the series banks don't usually use, they haven't completed the linkages. But this, the person said, won't matter since banks will be able to record all transactions originating from their branches on their core-banking system, ensuring that the process is not misused.

The SWIFT network allows banks to communicate all transaction-related information with each other using specific messaging types called “series”. There is, however, some overlap in functions of different series, leading to each bank using the messaging series they are comfortable with to communicate.

The banking regulator's original order and the subsequent demand for clarification comes amid the Rs 13,000-crore Nirav Modi fraud that first came to light in February. Punjab National Bank filed a formal complaint with the Central Bureau of Investigation after it found that some of its employees at the Brady House branch had colluded with representatives from diamantaire Modi's and jeweler Mehul Choksi's companies and initiated fraudulent letters of undertaking. These letters were used by Modi's and Choksi's companies to avail trade credit from foreign branches of other Indian banks.

An LoU is essentially a promise by a domestic bank that it will ensure repayment by a borrower to a foreign bank or the overseas branch of another Indian bank. Fraudulent LoUs mean that Punjab National Bank had taken non-funded exposures which it was not aware of. After the scandal and its investigation became public, the bank was forced to make good on all repayments to other lenders involved. Meanwhile, Modi and Choksi are both abroad and have not returned to India.