Nirav fraud to cost ` 17,632cr for banks

New Delhi, Feb. 18: Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies at the centre of a massive alleged fraud at PNB, the tax department has estimated.

As of March 2017, banks had extended loans and guarantees worth `17,632 crore to companies tied to billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the tax department said in a note seen by Reuters.

Since then, the loans and guarantees would have increased over the past year and the total “hit” to Indian banks “may well exceed” $3 billion, according to an internal note prepared by the tax authority on its preliminary probe into PNB fraud case. The bank said these fraudulent transactions had taken place over a number of years and amounted to $1.77 billion.

None of these letters of undertaking — essentially credit guarantees — were recorded on the bank’s internal software system and instead were transmitted through the SWIFT interbank messaging system, “thus avoiding early detection of fraudulent activity”, the tax note said.

It said that Choksi’s Geetanjali Gems and its subsidiaries led by Choksi dealt with 32 banks. Among those that offered credit to Choksi and Modi, famous for his chain of stores stretching from New York to Beijing, were the Union Bank of India, Allahabad Bank and Axis Bank, the tax note said.