NEW DELHI: Last summer, just before retiring from Punjab National Bank ( PNB ), Gokulnath K Shetty issued a 365-day letter of undertaking (LoU) or a guarantee that allowed Nirav Modi ’s companies to access funds from other banks. The former deputy manager is at the centre of the Rs 11,300-crore fraud . Typically, an LoU for a diamond trader is issued for 90 days.But, Shetty probably wanted to cover his tracks and ensure that the fraud, that had allegedly been going on since 2011 , did not come to light until a year of his superannuation. However, the lid was blown off in the second half of January, when executives from Modi ’s outfit approached the Brady House branch in Mumbai to seek a renewal of the facility.The PNB executive, who replaced Shetty, asked the company to cough up a hefty cash margin, prompting Modi’s people to disclose that they had never paid the bank in the past. The disclosure triggered an internal probe by PNB’s executives in Mumbai, resulting in the unearthing of what may be India’s largest ever banking fraud. PNB executives acknowledge that there were systemic lapses, and the bank should have noticed them earlier. To begin with, Shetty was allowed to continue at the same branch and handle the same assignment for years.The norm is every Scale-1 officer should be moved to another desk every six months and should be shifted to another branch at least once in three years. By all accounts, PNB failed to follow its own guidelines. The other is a system issue as the bank’s core banking solution was not connected with SWIFT, the international money transfer tool.This allowed Shetty to send messages via the fund transfer switch using his password. As there was no interconnection, the transactions were not reflected on core banking software. How no one noticed the messages on SWIFT remains a mystery, although bank executives said one or two frauds in the system are not unusual. They pointed out that a few years ago, PNB had to pay Indian Overseas Bank ’s Dubai branch Rs 300 crore due to allegedly irregular messages sent via SWIFT even though the documents seemed to be in order.When some of the allegedly fraudulent LoUs were issued, the bank also received fees from the company, a PNB executive said, something that should have raised an alarm. While the bank is being blamed for the embezzlement, role of its internal auditors and even RBI’s inspection and audit team is under the scanner. In the coming days, more bank executives are expected to face action, with the government putting the blame squarely on PNB.