MUMBAI/KOLKATA: Punjab National Bank is hit by the biggest ever corporate fraud in the country running into Rs. 11,300 crores that raised questions about its ability to survive the blow and set off disputes with half a dozen banks requiring regulatory and government intervention, said two people familiar with the matter.At a noisy meeting of bankers to resolve the issue after PNB disclosed that it is in the midst of massive fraud by employees that benefited fashion jeweller Nirav Modi and Gitanjali Gems owned by Mehul Choksi, it was decided that banks would recall Rs. 11,000 crore worth of domestic loans sanctioned to the two entities, said those people who did not want to be identified.PNB is attempting to wriggle out of the mess by stating that it is a `contingent liability’ and that it was done without proper authorisation though the transactions went through the globally accepted Swift messaging system that is binding on all users.Those banks entangled in the fraud such as the State Bank of India, Allahabad Bank, Axis Bank, Union Bank of India and Bank of India claim that the funds were credited into PNB’s Nostro account so it is the bank’s liability. Nostro account refers to an account that a bank holds in a foreign currency in another bank overseas."The Bank has detected some fraudulent and unauthorised transactions in one of its branch in Mumbai for the benefit of a few select account holders with their apparent connivance," PNB said in a statement. ``Based on these transactions other banks appear to have advanced money to these customers abroad. Liability arising out of these on the Bank shall be decided based on the law and genuineness of underlying transactions."But those banks which had exposure say that it the responsibility of Punjab National to honour the claims."Our Hong Kong branch had taken buyers' credit exposure against unconditional and irrevocable Letters of Undertaking," said Usha Ananthasubramanian, managing director at Allahabad Bank who earlier headed PNB. "The money have been credited to the Nostro account of PNB's branch. Therefore, the exposure is clearly on PNB, We have already filed our claims."Allahabad Bank has Rs 2000-2200 crore exposure to PNB, which was honoring the claims till January 5 but started defaulting from January 25."LoUs act as guarantee and buyers' credit normally given against 100% margin." said a former chairman of one of the banks involved. "The basic liability falls on PNB but it also needs to be seen whether proper due diligence was performed by the other banks. It's their duty to find out whether the LoUs were genuine," he said.The fraud which has been going on since 2010 at the Brady House branch of the bank in Mumbai came to light in January after an employee who was rolling over the letter of understanding retired. Subsequently the claims of banks such as Allahabad Bank, Union Bank of India and Axis Bank requests for rollover were not honoured by the new staff overlooking the account, said bankers choosing anonymity.For PNB, it appears to be a major hole in the risk management with its software not being integrated with the Swift messaging system that is used for international transactions.For Indian banking industry that was just about to see the end of years of bad loans induced misery, the latest fraud is a blow that would put them behind by a few years if the money is not quickly recovered. But the business being such with not much underlying securities, the recovery could be meagre. The government which decided to invest Rs. 2.1 lakh crores in capital may have to come up with more.