Will honour LoU commitment to all banks, says PNB
State-run Punjab National Bank (PNB) Wednesday said it will honour all letters of undertaking (LoUs) it had issued to group companies of Nirav Modi and Mehul Choksi in the ₹12,636-crore fraud.
The decision, which ends weeks of uncertainty, comes as a respite for banks which had lent money to these companies based on the fraudulently obtained LoUs. Overseas branches of State Bank of India, Bank of India, Allahabad Bank and Union Bank of India, among others, had extended such loans.
The decision to end the dispute with other banks over the liability of the fraud was taken at a board meeting, PNB said in a statement.
The board has approved payments related to LoUs and foreign letters of credit (FLCs) issued by the bank which mature on or before March 31, the bank said, adding this will lead to the settling of LoUs related to the fraud worth ₹6,500 crore with seven banks. “The bank will also honour all subsequent maturing LoUs and FLCs as and when they are due,” the statement said.
The bank had initially said that it was classifying the dues as contingent liability and will decide on its final liability depending on the findings of the investigating agencies probing the fraud. It had maintained that
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it will honour all bona fide commitments, but pointed out that other banks also failed to do the due diligence while giving loans to Modi and Choksi’s group firms.
Group firms of Modi and Choksi secured loans from international branches of other banks based on LoUs issued by employees of PNB. These were not recorded in PNB’s core banking system. The bank issued a total of 1,590 LoUs to group firms of Modi and Choksi since 2011.
The decision to pay was taken after consultation with the government and the Reserve Bank of India and after the bank weighed the odds of either providing for the liability or paying the dues to other banks, said a person familiar with the development.
Going with the first option will help generate goodwill for the bank, the person said on condition of anonymity.
(Gopika Gopakumar contributed to this story.)