Nirav Modi fraud: Public sector banks expect PNB to honour LoUs

They were all issued by PNB and against that we have made payment, SBI's Deputy Managing Director said

Public sector banks want PNB to honour its commitment with regard to LoUs allegedly issued by it to Nirav Modi and its associates, said State Bank of India (SBI) Deputy Managing Director M S Sastry.

He also said exact liability will be known after the completion of investigation.

"They were all issued by PNB and against that we have made payment," he told reporters here.

When asked if he expects Punjab National Bank (PNB) to honour all LoUs, he said, "Yes".

Meanwhile, PNB executive director Sanjiv Sharan said, "the matter is being investigated and it is under the process. So, it can not be inferred right now. We are on the job".

Billionaire jeweller designer Nirav Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated the PNB of Rs 130 billion through fraudulent Letters of Undertaking (LoUs).

The Mumbai branch of Punjab National Bank had issued as many as 1,213 letters of undertaking (LoUs) fraudulently for the group of companies belonging to Nirav Modi since March 2011.

Different investigating agencies, including CBI and Enforcement Directorate, are probing the fraud, dubbed as the biggest banking scam in the country.

Both houses of Parliament have witnessed repeated disruptions over the issue.

Hit by the PNB fraud, the Reserve Bank earlier this week stopped banks from issuing LoUs and Letters of Comfort for trade finance for imports into the country.

The RBI notification said that Letters of Credit (LC) and Bank Guarantees (BG) for trade credits for imports into India may continue to be issued, subject to compliance with the provisions.

The LC and BG will make trade finance slightly costlier but it is accepted instrument world-wide, Sastry said.