PNB ap­proaches CBI with plaint of ₹11,400­cr fraud

The bank al­leged spot­ting fraud­u­lent trans­ac­tions in­volv­ing dia­man­taire Ni­rav Modi & a jew­ellery com­pany

Hindustan Times (Jalandhar) - - FRONT PAGE - Re­mya Nair, Gopika Gopaku­mar, and Shaswati Das let­ters@hin­dus­tan­times.com

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.

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