PNB unearthed the scam on January 25, 2018, and submitted a fraud report to the Reserve Bank of India (RBI) on January 29. On that day, a criminal complaint for registration of FIR was also made with the CBI. This was followed by another fraud report being submitted to the RBI on February 7, the day when one more complaint was filed with the CBI” A. With reference to the PNB Fraud case, analyse the event in details. B. Enumerate the various risk that is highlighted in this event and bring out the difference between Systemic Risk and Unsystematic Risk.

A. The PNB fraud case, also known as the Nirav Modi-Mehul Choksi scam, was a significant financial scandal that rocked India's banking sector. It involved fraudulent transactions worth over $1.8 billion (₹11,300 crore) carried out by diamond merchants Nirav Modi and Mehul Choksi, along with their firms, in collusion with certain PNB officials.

Here's a detailed analysis of the events:

1. **January 25, 2018**: PNB uncovered the scam internally. It found that fraudulent letters of undertaking (LoUs) were issued to Nirav Modi's companies without proper authorization or collateral.

2. **January 29, 2018**: PNB reported the fraud to the Reserve Bank of India (RBI) and filed a criminal complaint with the Central Bureau of Investigation (CBI). This indicates the bank's proactive response to the fraudulent activities.

3. **February 7, 2018**: PNB submitted another fraud report to the RBI, highlighting the extent of the scam. Simultaneously, another complaint was lodged with the CBI, emphasizing the ongoing investigations and legal actions.

This sequence of events illustrates the discovery of fraudulent activities, the swift response by PNB in reporting the fraud to regulatory authorities, and the initiation of legal proceedings against the perpetrators.

B. The PNB fraud case highlights various risks, including:

1. **Credit Risk**: PNB faced significant credit risk due to the issuance of unauthorized LoUs, resulting in exposure to large loan amounts without adequate collateral.

2. **Operational Risk**: The fraudulent transactions exposed operational weaknesses within PNB's systems and controls, allowing unauthorized activities to go undetected for an extended period.

3. **Reputation Risk**: The scandal damaged PNB's reputation and eroded public trust in the banking system, leading to financial losses and loss of confidence among stakeholders.

Difference between Systemic Risk and Unsystematic Risk:

- **Systemic Risk**: This refers to the risk that affects the entire financial system or a significant portion of it. In the PNB fraud case, systemic risk was evident as it had implications beyond the bank itself, impacting other financial institutions and the broader economy.

- **Unsystematic Risk**: Also known as specific risk, this type of risk is unique to a particular company or industry and can be mitigated through diversification. In the PNB fraud case, unsystematic risk would include the specific operational and credit risks faced by PNB due to internal control failures and unauthorized transactions.