Nirav Modi
On Wednesday, PNB stunned the nation with the disclosure that it had discovered more fraudulent transactions dating back to 2011 involving Modi and some of his group companies perpetrated by some of its employees at a Mumbai branch.
The fraud pertains to issuance of letters of undertaking (LOU), essentially guarantees, to three companies associated with Modi by errant PNB employees. That enabled these companies to raise buyer’s credit from international branches of other state-run banks. These LOUS were not recorded in the bank’s books or in the core banking system but have left PNB open to claims from other banks.
A second CBI officer familiar with the matter said PNB had issued around 150 LOUS involving ₹6,400 crore to companies promoted by Modi and more letters, for around ₹4,000 crore to Choksi’s companies.
According to Bloomberg News, Allahabad Bank has exposure of around R4,000 crore to the fraud, while Union Bank has some ₹2,000 crore exposure. The report also said that Axis Bank has about ₹3,000 crore exposure, but the private-sector lender clarified in a stock exchange notice that it has sold this exposure.
State-run banks have demanded that PNB honour its LOUS, based on which they lent to companies related to Modi. In a caution notice sent to chiefs of 30 banks on Tuesday, PNB had written that overseas branches of these banks did not share any document or information at the time of extending buyers’ credit to the companies. It also said that these banks violated RBI rules.
“If the investigation process says it is our liability, then we will accept it,” PNB’S managing director and chief executive officer Sunil Mehta said at a press conference on Thursday. When asked how these fraudulent transactions escaped the notice of auditors, Mehta said these LOUS were issued using the SWIFT messaging system, but without making any corresponding entries in the bank’s books, due to which it escaped notice.
He added that with the raids and seizure of assets being carried out, a good portion of the amount could be recovered. He also said that the fraud was confined to only one branch and was not widespread.
According to Mehta, Modi has approached the lender with a vague repayment plan, and the bank has asked him to come up with a concrete repayment plan.
The ED on Thursday registered a case under the Prevention of Money Laundering Act. Shares of PNB continued their downward spiral falling nearly 12% to ₹128.35 on Thursday on the Bombay Stock exchange. The stock fell 10% on Wednesday.