The Reserve Bank of India has asked banks to finish fully integrating the core banking system with the SWIFT messaging network by April 30, two bankers in the know said.
The regulator has been issuing similar instructions for nearly two years in its audit report of banks which they have been following, the bankers quoted above said. Some lenders, however, were ahead of others in full integration.
A gap between the SWIFT network and Punjab National Bank's CBS is said to be the reason behind the Rs 11,400-crore fraud. A few bank employees connived with representatives of jewellery designer Nirav Modi's companies to issue fraudulent letters of undertaking through SWIFT to overseas branches of other Indian banks. In exchange for the LoUs, the companies received buyer's credit, which became a non-funded exposure for PNB.
While it's simpler to ensure the integration of standard format processes with CBS, it's rather difficult to integrate simple text messages, one of the two bankers said. A letter of credit is created in a standard format across the banking industry. In the case of a LoU, there were only basic text messages, which is why it's difficult to link them, the banker explained.
Banks were fast-tracking the entire process of fully linking the SWIFT network with the CBS and would be able to complete this well before the deadline, both the bankers quoted above said.
The Reserve Bank of India has been issuing confidential communications to bankers, warning them about a potential misuse of the SWIFT network, the regulator said in a press statement on Tuesday. Since August 2016, it had issued three such communications, it said. The central bank listed various safeguards that banks were expected to implement so that they may protect themselves against a fraud.
If the SWIFT network was fully linked to the CBS, PNB's central office would have found out about the fraudulent LoUs much sooner, experts have said.
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