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PNB detects Rs 11,400 cr fraud, man behind the scam Nirav Modi booked

Thursday February 15, 2018 1:04 PM, & Agencies

PNB Fraud

New Delhi/Mumbai:
State-owned Punjab National Bank (PNB) on Wednesday said it has detected a USD 1.77 billion (about Rs 11,400 crore) scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.

PNB has suspended 10 officers and referred the matter to CBI for investigation.

Enforcement Directorate files money laundering case against Nirav Modi: The agency raided multiple locations related to Modi in Surat, Mumbai and Delhi on Thursday.

"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," India's second-biggest state-run bank said in a regulatory filing. "Based on these transactions other banks appear to have advanced money to these customers abroad."

While PNB did not name the other lenders, Union Bank of India, Allahabad Bank and Axis Bank are said to have offered credit based on letters of undertaking (LOUs) issued by PNB.

An LOU is a letter of comfort issued by one bank to branches of other banks, based on which foreign branches offer credit to buyers.

Foreign bank branches too are under investigation.

The latest disclosure comes just over a week after Central Bureau of Investigation (CBI) officials said they were investigating Nirav Modi and others over accusations that they defrauded PNB of $44 million.

An official with the CBI told Reuters on condition of anonymity that the cases were related.

Nirav Modi in Forbes List

Nirav Modi made it to the Forbes' list of billionaires in 2013 and has remained in the exclusive group ever since. In the Forbes' list of billionaires for 2016, Nirav Modi was ranked 1,067 in the world and 46 in India. He was ranked 1,054 globally and 82 in India a year ago. Nirav Modi was born in a family of diamond merchants.

The Forbes had described Nirav Modi as one of the youngest billionaires of India. He is the founder of USD 2.3 billion Firestar Diamond and has business spread across three continents from China in Asia to Hawaii Islands in North America.

India’s bad loans

India’s bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending - the combination has choked new lending and dragged on the economy.

Analysts say the actual level of bad loans is higher than the official figures suggest, pointing to central bank audits of banks, including State Bank of India, that showed non-performing loans were higher than reported for the financial year ended March 2017. Banks have also been blamed for perpetually renewing loans on soured assets.

Most of the loan-restructuring schemes that the central bank is withdrawing have seen little success. Analysts say banks will soon have to declare the loans in those schemes as non-performing loans, which will trigger the timeline for banks to take debtors to court.

Impact on other banks likely

Banking sources on Wednesday said impact of the PNFB fraud could extend to other banks too, though they refused to name.

Meanwhile, the stock tanked nearly 10 per cent on Wednesday considering the magnitude of the scam which is nearly one-third the market capitalisation of PNB, he said.

On the BSE on Wednesday, PNB's shares closed at Rs 145.80, down from Rs 161.65, the closing price on Tuesday.

Financial Services Secretary Rajiv Kumar however said this seems to be an isolated case and is not going to impact other lenders.

"The finance ministry has taken proactive steps by asking the lender to report the matter to CBI and Enforcement Directorate (ED) so that action can be taken quickly," he told PTI.


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