Few diamond firms found it unusual when Punjab National Bank demanded 100% cash margins for issuing LOUs (letters of undertaking), which is a form of bank guarantee under which its customers can raise money from any other Indian bank's foreign branch in the form of short-term credit.
However, the firms argued that this requirement was not enforced for the LOUs they received since 2010. This raised alarms and PNB called for an investigation. They found out a few employees had been issuing fake LOUs through the SWIFT system (a messaging system between banks). Unfortunately, the software that PNB used to facilitate SWIFT didn't record its transactions. This allowed the fraud to go undetected. A month later, PNB ...
