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Rediff.com  » Business » PNB reports Rs 11,400 cr fraud involving jeweller Nirav Modi, suspends 10

PNB reports Rs 11,400 cr fraud involving jeweller Nirav Modi, suspends 10

Last updated on: February 14, 2018 22:24 IST

While PNB did not name the other lenders, Union Bank of India, Allahabad Bank and Axis Bank are said to have offered credit based on letters of undertaking (LOUs) issued by PNB.

Foreign bank branches too are under investigation. 

State-owned Punjab National Bank on Wednesday said it has detected a USD 1.77 billion (about Rs 11,400 crore) scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.

PNB has suspended 10 officers and referred the matter to CBI for investigation.

Financial Services Secretary Rajiv Kumar said this seems to be an isolated case and is not going to impact other lenders. "The finance ministry has taken proactive steps by asking the lender to report the matter to CBI and Enforcement Directorate (ED) so that action can be taken quickly," he told PTI.

 

While PNB did not name the other lenders, Union Bank of India, Allahabad Bank and Axis Bank are said to have offered credit based on letters of undertaking (LOUs) issued by PNB.

An LOU is a letter of comfort issued by one bank to branches of other banks, based on which foreign branches offer credit to buyers.

Foreign bank branches too are under investigation.

Three other jewellers, Gitanjali, Ginni and Nakshatra are under the scanner with CBI and ED looking at their arrangements with various banks and end use of money, a senior official of a public sector bank told PTI.

No immediate comments were available from these companies.

Last week, PNB had lodged an FIR with CBI stating that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16. At the time, PNB had said it was digging into records to examine the magnitude of the fraud.

In the complaint, PNB had named three diamond firms -- Diamonds R Us, Solar Exports and Stellar Diamonds -- saying they had approached it on January 16 with a request for buyers' credit for making payment to overseas suppliers. 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.

Nirav Modi, his wife Ami, brother Nishal and Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and New York.

Among those named is a deputy manager, Gokulnath Shetty, who was posted at PNB's foreign exchange department in Mumbai since March 31, 2010. He along with another official Manoj Kharat had allegedly and fraudulently issued LoUs to these firms without following prescribed procedure or making entries in the banking system, avoiding detection of transactions.

"This (investigation) is a part of the clean-up drive that started with AQR (Asset Quality Review) in 2015. Post clean up, this is going to make banks clean forever, healthy, responsive and enable them to provide hassle-free banking to all honest borrowers," Kumar said.

The public sector bank officer, quoted above, said there is strict instruction from the finance ministry to all banks that no big fish should go scot-free and no honest borrower is harassed.

Banks are now looking at their systems and processes so that such frauds are not repeated, he said, adding all banks have been asked to present a status report as soon as possible.

In 2015, Bank of Baroda -- another public sector bank -- had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 6,000 crore (slightly less than USD 1 billion at that time).

Investigations revealed major irregularities, as the forex transactions were done mainly via advance remittances for import, through newly-opened current accounts. Heavy cash transactions -- sometimes four or five times a day -- were also noticed.

The Enforcement Directorate, under the revenue department of the finance ministry, had arrested the businessman duo under money laundering provisions.

PNB said in a statement that fraudulent transactions took place in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance.

Based on these transactions, done by his brother Nishal, wife Ami and Mehul Chinubhai Choksi, other banks appear to have advanced money to these customers abroad.

The CBI has received two complaints from the PNB against billionaire diamantaire Nirav Modi and a jewellery company alleging fraudulent transactions.

Modi, whose jewellery creations are popular among global celebrities, may face a fresh CBI probe as the agency is looking at suitable legal action to be taken in the case.

He is already being investigated by the CBI for alleged cheating and fraud involving Rs 280 crore at a PNB branch. The Enforcement Directorate has registered a money laundering case in connection with this case, on the basis of a CBI FIR.

Official sources said the agency filed the case under the Prevention of Money Laundering Act (PMLA) after going through a CBI FIR filed early this month.

It is understood that the ED also went through the PNB complaint that was made out against Modi and others.

The agency, they said, would probe if the allegedly defrauded bank funds were laundered and these proceeds of crime were subsequently used by the accused to create illegal assets and black money. 

BSE notified 

Meanwhile, the bank had also intimated stock exchange BSE about the "fraudulent and unauthorised" transactions worth over USD 1771.69 million in one of its branches in Mumbai. 

In its filing at the BSE, the PNB said the bank had detected some fraudulent and unauthorised transactions in a Mumbai branch. 

"Based on these transactions other banks appear to have advanced money to these customers abroad," it said, adding that the matter had been referred to law enforcement agencies to examine the case and book the culprits.” 

The intimation did not say if these transactions were linked to Modi. 

Officials in the agency, however, confirmed that the transactions cited by the bank in its complaint were linked to Modi and a jewellery company, whose name they have withheld. 

No official comments were available from the agency on the issue or the nature of the transaction. 

Who is Nirav Modi? 

IMAGE: Actress Priyanka Chopra models for Nirav Modi jewelry.

The designer, himself a celebrity, grew up in Belgium's Antwerp -- the diamond capital of the world -- and started his own brand by the name of ‘Nirav Modi’. 

His name first appeared in a CBI case earlier this month after the agency registered a case against him and Mehul Choksi, who runs a jewellery and gem store chain with the brand name Gitanjali, for alleged cheating and forgery worth Rs 280 crore on a complaint from the public sector bank, PNB. 

Concerned over fraud of over Rs 11,300 crore at Punjab National Bank, the finance ministry has asked all banks to send reports involving this case or other such incidents latest by the end of this week. 

How the scam was worked 

Earlier in the day, PNB disclosed some fraudulent transactions with financial implication of USD 1.77 billion (about Rs 11,334.4 crore). 

The bank has detected some fraudulent transactions in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance, PNB said in a statement. 

Based on these transactions, other banks appear to have advanced money to these customers abroad, it said. 

Since more than one lender is involved, all banks have been asked by the department of financial services to submit a status report soon on the fraud, official sources said. 

They said the Letter of Undertaking was issued fraudulently by PNB to billionaire diamond merchant Nirav Modi and associates and was encashed overseas by them from different banks, both private and public sector. 

All this was being carried out in connivance with officials as high as deputy general manager since 2011, sources added. 

As a corrective measure, PNB has suspended 10 employees in connection with the fraud. 

The finance ministry has asked, through the reform agenda circulated to the banks on January 24, that dubious accounts should be scrutinised and appropriate action against fraudsters be taken with zero tolerance, sources said. 

Banks should not dither from taking action against their own employees in case of collusion if there is sufficient ground, they added. 

Fraud ‘not out of control’ 

Meanwhile, the finance ministry today sought to allay worries over the Rs 11,300-crore fraud case at Punjab National Bank, saying the case not "out-of-control" and it is taking action in this respect. 

"I don’t think this is out of control or too big a worry at this point. That is my broad sense," joint secretary in the department of financial services Lok Rajan said on the sidelines of an event in New Delhi. 

PNB scrip takes a beating 

On the stock exchanges, meanwhile, shares of Punjab National Bank plunged 10 per cent after the State-run bank detected financial fraud of over Rs 11,300 crore in one of its branches in Mumbai. 

Other PSU banks were under pressure too and fell by up to 8 per cent after the Reserve Bank of India (RBI) came out with new norms for recognising stressed assets. 

The stock of PNB settled at Rs 145.20 on the NSE, a slump of 10.29 per cent from its previous close. During intra-day trade, the scrip had touched a low of Rs 145.15. 

Similar movement was witnessed on the BSE, as the scrip closed 9.81 per cent lower at Rs 145.80. It had opened at Rs 160 and soon touched an intra-day low of Rs 144.70. 

Following the decline in the counter, the market capitalisation of the company eroded by Rs 3,844 crore to Rs 35,365 crore. 

In a regulatory filing to stock exchanges today, PNB said it has detected some fraudulent transactions with financial implication of USD 1.77 billion (about Rs 11,335 crore), and the matter has been referred to law enforcement agencies for recovery. 

The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance, PNB said. 

Based on these transactions, other banks appear to have advanced money to these customers abroad, it said. 

Among other banking counters, State Bank of India (SBI) declined 4.06 per cent to end at Rs 276.80. 

Bank of India lost 7.87 per cent, followed by Allahabad Bank (7.79 per cent), Oriental Bank of Commerce (7.43 per cent), Canara Bank (5.82 per cent), Syndicate Bank (4.49 per cent), IDBI Bank (4.22 per cent) and Bank of Baroda (1.75 per cent). 

"The PSU banking space was the party spoiler today as we saw massive cut in individual names within this basket. Going ahead, one needs to keep a close eye on this basket as follow-through selling may result in further dampness in the market," said Sameet Chavan, chief analyst-technical and derivatives at Angel Broking. 

On Monday, after close of market hours, RBI came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code. 

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