Punjab National Bank, India`s second-biggest state-run lender, had discovered an alleged fraud worth Rs 11, 400 crore . The announcement has stunned the country’s financial sector. The fraud, by far, the biggest ever detected by an Indian Bank at a single Branch in Mumbai. The fraud comes to light at a time when lenders – especially state-run banks – are hobbled by $147 billion in soured loans on their books, a problem that has slowed lending and hurt the economy.
After acknowledging the fraud, PNB filed a complaint with India`s federal investigative agency against three companies and four people, including billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million).
Further, the bank alleges that two junior employees of PNB, has colluded with companies belonging to Modi and Choksi. Without asking for any margin money as security, they issued fraudulent “letters of undertaking” to the firms, even though the firms did not have any pre-approved credit limit. Giong further, the firm raised short-term credit from overseas branches of other Indian banks based on these LoUs.
- So far, The Central Bureau of Investigation (CBI) has arrested 12 people – six from the bank and six from Modi and Choksi`s companies. Diamonds and jewellery worth 56.74 billion rupees ($875 million) and nine luxury cars including a Rolls-Royce Ghost was seized by the Enforcement Directorate, after searching Nirav Modi`s home and offices.
- The Reserve Bank of India (RBI) asked the banks to ensure their SWIFT system to integrate with their main banking software to avoid any similar fraud.
- Also, The Finance Ministry has written to banks telling them to take effective steps to avoid any similar fraud. The government said it will not spare wrongdoers in the PNB case.
PNB authorise the transactions are “contingent” in nature and it is ready to honour “bona fide” commitments. Punjab National Bank is implementing the legal procedures to recover its dues and it has asked Modi to respond with a “concrete and implementable” repayment plan.