PNB fraud swells to well above $2 bn; RBI bans LoUs: Top 10 developments

Fugitive jeweller Nirav Modi obtained his first fraudulent guarantee from PNB's Brady House branch in Mumbai on March 10, 2011 and managed to get 1,212 more such guarantees over the next 74 months, Finance Minister Arun Jaitley said on Tuesday. Companies linked to Nirav Modi obtained Letters of Undertaking (LoUs), which were used to get loans from overseas branches of Indian banks, up to five guarantees on a single day, with the help of rouge employees of the country's second biggest state-run bank. In a written reply to a question in the Rajya Sabha, Jaitley said the last fraudulent LoU was issued on May 23, 2017.

During these six years, 53 genuine (non-fraudulent) LoUs were also issued to Nirav Modi Group - the first being on March 5, 2011 and last on November 6, 2017, he said.
 

The fraudulent LoUs had a validity of up to one year.

Payments due in January this year were against LoU issued in February last year, he said, listing date-wise the LoUs issued.

Companies linked to Modi and his uncle Mehul Choksi defrauded PNB to the tune of Rs 136 billion. Choksi's Gitanjali Group defrauded Rs 70.8086 billion while the rest is attributed to companies of Modi.

Jaitley said "PNB Head Office received a report suspicious outstanding unauthorised transactions from Circle Office, Mumbai on January 23, 2018." "Immediately an investigating team was constituted which gave its preliminary report on January 25, 2018. On January 29, 2018 (January 26 to 28 being public holidays), fraud was reported to RBI and complaint lodged with CBI Mumbai," he said.

1. Nirav Modi got 1,213 fraudulent guarantees in six yrs: FM

Fugitive jeweller Nirav Modi obtained his first fraudulent guarantee from PNB's Brady House branch in Mumbai on March 10, 2011 and managed to get 1,212 more such guarantees over the next 74 months, Finance Minister Arun Jaitley said today.

Companies linked to Nirav Modi obtained Letters of Undertaking (LoUs), which were used to get loans from overseas branches of Indian banks, up to five guarantees on a single day, with the help of rouge employees of the country's second biggest state-run bank.

In a written reply to a question in the Rajya Sabha, Jaitley said the last fraudulent LoU was issued on May 23, 2017.

During these six years, 53 genuine (non-fraudulent) LoUs were also issued to Nirav Modi Group - the first being on March 5, 2011 and last on November 6, 2017, he said.

2. PNB discloses $145 mln additional exposure in fraud probe

Punjab National Bank has told police that it has uncovered additional exposure of Rs 9.42 billion ($145.2 million) in connection with a massive alleged fraud, according to a court filing seen by Reuters.

In what has been dubbed as the biggest fraud in India's banking history, PNB, the country's second-biggest state-run lender, said last month it had been defrauded of about $2 billion by two jewellery groups who raised credit from overseas banks based on fraudulent guarantees issued in collusion with rogue PNB staff.

3. RBI stops use of LoUs for trade credit for imports 

In a major decision, RBI on Tuesday banned banks from issuing Letters of Undertaking (LoUs) -- instruments used allegedly by diamantaire Nirav Modi and his uncle Mehul Choksi to defraud state-owned PNB of Rs 130 billion in connivance of bank officials.

The RBI said the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for trade finance comes into force with immediate effect.
 

"On a review of the extant guidelines, it has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category–I banks with immediate effect," the central bank said in a notification.

4. CBI registers fresh case against Nirav Modi:  

The Punjab National Bank on Sunday filed a fresh complaint with the CBI alleging that three firms liked to diamantaire Nirav Modi's Firestar International- Solar Exports, Stellar Diamonds and Diamond R Us after spotting circular transactions between them. PNB also reported the same to the Reserve Bank of India (RBI)

The CBI, after examining the complaint, registered a fresh case against Nirav Modi for causing a loss of Rs 3.21 billion to PNB by availing different credit facilities between the years 2013 and 2017.

Firestar International finance chief Vipul Ambani and others among the top brass of the group have also been named in the latest PNB scam case.

5. How will you bring back PNB scamsters, Congress asks PM Modi:

The Congress on Thursday moved a motion in the Rajya Sabha demanding a discussion on the PNB scam. The party demanded a statement on the ongoing investigation in the PNB scam from Prime Minister Narendra Modi in both the houses of Parliament. Earlier, the Congress had also staged a protest near Mahatma Gandhi's statue in the Parliament.

6. The 80:20 gold import scheme

After Nirav Modi and Gitanjali fraud on PNB, the skeleton of the 80:20 gold import scheme restricting gold import announced by the United Progressive Alliance (UPA) government are beginning to tumble out. 

"There was a scheme 80:20 introduced in August 2013 and repealed in November 2014. On 16th May, 2014, the date of the declaration of results, the then finance minister gave 'aashirvaad' to seven private companies under 80:20 Scheme. One of those companies was Gitanjali," alleged Union minister Ravi Shankar Prasad on Monday. "Chidambaram & Rahul Gandhi must answer why was this passed on the day of results to benefit these seven private companies," Prasad said.

7. Top banking officials talk to SFIO:

PNB managing director and CEO Sunil Mehta on Wednesday appeared before the Serious Fraud Investigation Office (SFIO) to record his statement in the nearly Rs 127 billion scam at the bank.

ICICI Bank chief Chanda Kochhar and Axis Bank's Shikha Sharma were also summoned by the anti-fraud agency in the bank fraud case.

8. Vigilance award for PNB:

The Punjab National Bank (PNB) has been awarded by the Central Vigilance Commission for timely clearance of disciplinary proceeding, an official of the corruption watchdog said.

PNB was in competition with four other entities in the category, but the scam-ridden PSB won on the back of its record of 92 per cent of cases initiated during 2016.

The second best performance was reported by the CVO of Indian Bank, with 56 per cent being finalised.

9. Nirav Modi no more a Forbes billionaire: 

Nirav Modi, who appeared in the list in 2017 with a fortune of $1.7 billion, has been excluded from the 2018 list. Forbes' website describes Modi as the founder of Firestar Diamond, "which claimed to have more than $2 billion in sales." The Saudi business magnate Prince Alwaleed Bin Talal too has been excluded.

10. Setback for rupee forward rates:

One-year rupee forward rates have crashed in the currency market as importers are compelled to buy dollars in the currency market to service their debts. The plunge that amounts to about 50 paise, implies the acute dollar shortage in the forwards market. While the 50 paise slide may not seem like a big setback, forwards move by only a few paise every day.