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PNB detects $1.77 bn fraud

Press Trust of India  |  New Delhi 

State-owned today said it has detected a USD 1.77 billion (about Rs 11,400 crore) scam where billionaire allegedly acquired fraudulent letters of undertaking from a branch in to secure overseas credit from other Indian lenders.

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

said this seems to be an isolated case and is not going to impact other lenders. "The has taken proactive steps by asking the lender to report the matter to and (ED) so that action can be taken quickly," he told

"The has detected some fraudulent and unauthorised transactions in one of its branch in for the benefit of a few select account holders with their apparent connivance," India's second-biggest state-run said in a regulatory filing. "Based on these transactions other banks appear to have advanced money to these customers abroad."

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

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.

too are under investigation.

Three other jewellers, Gitanjali, Ginni and Nakshatra are under the scanner with and ED looking at their arrangements with various banks and end use of money, a of a told

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 are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and

Among those suspended is a deputy manager, Gokulnath Shetty, who was posted at PNB's foreign exchange department in since March 31, 2010. He had allegedly along with another official 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 to all honest borrowers," Kumar said.

The officer, quoted above, said there is strict instruction from the 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, -- another -- had brought to light a scam in which two Delhi-based 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 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 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.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, February 14 2018. 20:45 IST