The Punjab National Bank announced that it had detected INR 11,400 crore scam which involved billionaire jeweler Nirav Modi. He acquired fraudulent letters of undertaking following which the bank has suspended 10 of its employees in connection with the case. The bank did not specify the quantum of liability for the bank and if the fraudulent LoUs were backed by cash margins.
The bank stated that two of its employees issued buyers’ credit allegedly and communicated SWIFT instructions to the overseas branch of the Indian banks without making any entries in the banking system. These instructions were to raise the LoUs for Nirav Modi’s firms, Solar Exports, Stellar Diamonds and Diamond R US.
These LoUs had been issued for the overseas branches of Axis Bank and Allahabad Bank post which these banks have given money to the beneficiary entity on behalf of Modi’s firms. As a result, the bank will have to settle the LoUs with the branches which could result in higher provisioning for the next couple of quarters in the books of PNB if it is unable to recover the money.
The Reserve Bank of India and Sebi are likely to approach their counterparts in Hong Kong for cooperation in the matter related to INR 11,400 crore fraud at the public sector lender PNB where a number of entities have come under the scanner. The RBI may approach the Hong Kong Monetary Authority in order to gather further details in the matter. Similarly, Sebi could get in touch with Securities and Futures Commission for the same. The regulators are set to spread the net overseas as it has been noted that credit was availed from a number of bank branches in Hong Kong on the basis of Letters of Undertaking which were issued by Punjab National Bank.
The LoUs were used for availing credit at the Hong Kong based branches of Indian banks. A number of other entities that are in the diamond trade were also under the hammer. The officials noted that another public sector bank that is currently under the scanner for business dealings with a South African group is also being probed as both the cases could be linked.
While PNB did not name other lenders, Axis Bank, Allahabad Bank and Union Bank of India are said to have offered credit based on the LoUs which were issued by PNB. Gitanjali, Nakshatra and Ginni are other jewelers who are under the scanner with CBI and ED looking at the arrangement with various banks and the end use of money.