In 5 days, PNB may be first bank to get 'defaulter' tag due to Nirav Modi

The tainted lender needs to repay Union Bank of India Rs 10 billion by March 31; if it can't, UBI may be forced to classify it as an NPA

The Rs 127-billion PNB fraud may be responsible for the first time that a bank gets listed as a defaulter in India. As a result of the scam carried out by diamantaire Nirav Modi and his associates, Punjab National Bank (PNB) owes Union Bank of India Rs 10 billion.

If PNB fails to pay the amount within five days, that is by March 31, it will be considered to have defaulted in the UBI's account books, according to the Economic Times. In that case, Union Bank may also have to classify the loan as a Non-performing asset (NPA).

PNB had issued Nirav Modi LoUs (Letters of Undertaking) worth almost $2 billion. An LoU is generally used as a guarantee by businesses to get loans from lenders abroad. This instrument is meant to help debtors abroad as banks might not otherwise be willing to lend them.

Nirav Modi and others allegedly misused this instrument by illegally obtaining multiple LoUs from PNB and furnishing them to overseas branches of Indian banks to get loans. Apart from UBI, Axis Bank has an exposure of Rs 20-30 billion, Allahabad Bank has Rs 40 billion and SBI, Rs 13 billion.

PNB issued more than 20 LoUs every day in the last 7 years

According to news agancy IANS, the Central Government has said that state-owned PNB issued 41,178 LoUs since 2011.

"PNB has apprised that 7,672 LoUs were issued with validity of 90 days, 20,078 LoUs were issued with validity of 180 days, 11,224 LoUs were issued with validity of 365 days, and 2,204 LoUs were issued with validity of more than 365 days," Finance Minister Arun Jaitley informed the Rajya Sabha on March 20.