PNB names Nirav Modi and Gitanjali Gems in the mega Rs 114-bn fraud

Core banking system bypassed to issue unauthorised and fraudulent guarantees


In what may turn out to be one of the biggest scams in the country’s corporate history, Delhi-based Punjab National Bank (PNB) said on Wednesday it had been defrauded of about Rs 114 billion by jeweller Nirav Modi, his maternal uncle Mehul Chinubhai Choksi, and other relatives through a clutch of companies they own.

The country’s second-largest public sector bank (PSB) said two of its employees were involved in the scam, where the bank’s core banking system was bypassed to raise payment notes to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT.

ALSO READ: PNB fraud: Sebi likely to probe disclosure lapses by banks, jewellery firms

Three jewellers Gitanjali Gems and its subsidiaries Gili and Nakshatra are also under the scanner of investigation agencies.

Executives in other banks said they were insulated against the fraud, as the payment request was raised by PNB (irrespective of who raised that in the bank), and therefore, the payment would have to be met by the Delhi-based bank.

PNB had overdues slated to be paid on January 25 and subsequently on February 5, which were in default, said Usha Ananthasubramanian, chief executive officer (CEO), Allahabad Bank.

“We do have exposure to PNB, but it is on the bank, and not on the client. The exposure is roughly in the range of Rs 20-22 billion,” Ananthasubramanian said.

However, PNB in a letter to banks, indicated clearly that it was in no mood to pay back and alleged connivance of employees at the foreign branches of other Indian banks.

In a letter to the chiefs of several banks, a general manager of PNB said the letters of undertakings (LoUs) are were opened in favour of branches of Indian banks for import of pearls for a period of one year, for which the Reserve Bank of India (RBI) guidelines stipulate a total time period of 90 days from the date of shipment.

“This stipulation was overlooked by overseas branches of Indian banks that are also required to follow the RBI guidelines. There is clear criminal connivance of group companies of Nirav Modi and Gitanjali Gems with our branch official and also, apparently, with officials of overseas branches of Indian banks,” the letter said. “None of the overseas branches of India based banks has shared with us any document/information made available to them by these Indian companies at the time of availing buyers’ credit from them,” it added. The banking system is heading towards a protracted legal battle as other banks will start suing PNB over non-payment of dues and refusal to honour commitments. Besides, other banks also have separate exposure to companies owned by Modi, who has shot a mail to the lenders, assuring them that he will return all dues and that his brand, Firestone Diamond, valued at Rs 105 billion, was up for sale. | Readmore

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