150 FAKE LoUs WERE PUT OUT

Axis, Allahabad Bank were hit

The fake letters of understanding issued by the RBI became the basis on which other lenders -- the Union Bank of India, the Allahabad Bank and the Axis Bank -- offered credit. The PNB, from its own account, has thus far detected 150 LoUs which were fraudulently issued by its officials in connivance with Nirav Modi.

Two PNB bank functionaries, a retired deputy manager Gokulnath Shetty and another office Manoj Hanumant Kharat, connived with the diamond merchant in the swindle.

According to informed sources, an LOU has to be approved by no less than three people, including a maker, checker and a verifier.

Not only the banking system of checks and balances was bypassed, but these multiple LOUs were not even entered into the ‘swift’ system, whereby all banks are informed of the sanction. On the basis of these fake LoUs, Mody was able to inflate his loan raising profile.

Incidentally, these LOUs have an expiry date of 180 days, but they were apparently honoured by lender banks and their foreign branches well beyond the cut-off date. It is yet another scam why these expired LOUs were ignored.

Three diamond firms - Diamonds R Us, Solar Exports and Stellar Diamonds -- approached PNB on January 16 with a request for buyers' credit for making payment to

overseas suppliers. Incidentally, in all these firms, Nirav and his relatives are partners. The bank sought 100 per cent cash margins for issuing LoUs for raising buyers' credit, which was contested by the firms saying they had availed of the facility from as early as 2010. Finding no legal way out, the accused allegedly forged a LoU.

Based on these transactions, other banks appear to have advanced money to these customers abroad. All this was being carried out in connivance with officials as high as the Deputy General Manager since 2011.