Fraud at India state-run bank could be higher than expected

The extent of the unravelling fraud at India’s state-run Punjab National Bank could rise beyond the nearly $2bn mark so far outlined by the lender, according to a source involved in the investigation and court documents.

The source, who asked not to be named, said investigators had not yet recovered all the papers and loan guarantees allegedly issued by rogue employees of the bank.

Consequently, the investigators believed the bank’s exposure could be greater than revealed so far. In what has been dubbed the biggest fraud in India’s banking history, Punjab National Bank and police have accused two jewellery groups of colluding with bank staff to get credit from overseas banks using fraudulent guarantees.

One group is controlled by diamond tycoon Nirav Modi and the other by his uncle Mehul Choksi. Both Choksi and Modi have denied the corruption allegations, and lawyers for the two key accused employees at the state-run bank have also said that they are innocent.

According to court filings, the exposure to three companies controlled by Modi has been estimated at 64.98-billion rupees ($999m), while firms controlled by Choksi have been accused of defrauding the bank of 61.38-billion rupees.

India’s federal police, the Central Bureau of Investigation (CBI), has told a Mumbai court that the amount involving Modi’s companies was likely to go up, according to the source and court filings, copies of which have been reviewed by Reuters. The CBI told the court its investigation had found the fraudulent issuance of letters of undertaking, or guarantees, through a Mumbai branch of the bank had been going on since 2010.

In papers filed on Monday, the CBI also said the bank did not have all the documents related to the letters of undertaking, since those were returned to the borrower.

“Most of these documents are not yet recovered. The size of the fraud has now gone [up] and the amount is likely to go even higher,” the CBI said in the court filing.