PNB approaches CBI with plaint of ₹11,400cr fraud
BIZMAN IN TROUBLE The bank alleged spotting fraudulent transactions involving diamantaire Nirav Modi & a jewellery company
NEWDELHI/MUMBAI: State-run Punjab National Bank (PNB) said it has unearthed fraudulent transactions of around ₹11,400 crore in one of its branches in Mumbai and filed a complaint with the Central Bureau of Investigation (CBI) on the fraud amid concern that the contagion could spread to other banks.
According to two people familiar with the matter, who asked not to be identified, the case pertains to jeweller Nirav Modi, who is already being investigated by the federal investigation agency in connection with an earlier complaint by the same bank. The complaint was about fraudulent transactions of ₹280 crore, although the bank said at the time that it was checking if the magnitude of the swindle was more.
Modi did not respond to an email seeking comment.
PNB managing director and CEO Sunil Mehta didn’t respond to an email seeking comment.
The chief executive of a bank said on condition of anonymity that Modi had written to bankers offering to repay all his dues to them by selling his flagship company Firestar Diamond, which is valued at ₹6,435 crore, in the next three to six months. PNB’S shares fell 10% on Wednesday. The finance ministry moved swiftly to contain the crisis, and issued an advisory late on Tuesday asking all banks to review all their large exposures (or total loans to one customer). The ministry has also asked the ED to investigate the matter.
The fraud was perpetrated by employees of PNB who allegedly issued authorised so-called letters of understanding (basically, guarantees) that helped Modi’s companies raise credit.
It is believed that they did so without making any entries in the bank’s books or recording them in the core banking system.
The international branches of many other Indian banks — it is believed as many as 30—including Allahabad Bank, Axis Bank
Ltd, State Bank of India (SBI), Union Bank of India and some foreign banks loaned money to Modi’s companies based on these fraudulent guarantees.
PNB has already suspended 10 employees. The fraud dates back to 2011, although it isn’t clear how long it lasted or how many guarantees were given.
Any delay in addressing the issue could result in a full-blown war between banks.
A person familiar with the development at PNB said the bank did not see itself responsible for making good with other banks affected because the guarantees had not been issued by it but by delinquent employees.