PNB diamond scam vaults to Rs 11000cr

Nirav Modi

New Delhi: Punjab National Bank rocked the financial world on Wednesday with the revelation that it had detected "fraudulent and unauthorised transactions" worth $1.77 billion (over Rs 11,000 crore) at one of its branches in Mumbai.

The bank - one of the largest state-owned players - said some rogue bank officials had connived with some of its customers to carry out these transactions using fake documents that were used to persuade other banks to advance sums of money to customers overseas.

The fraudulent transactions are reportedly linked to a leading Mumbai-based jeweller, Nirav Modi, against whom the bank had filed a complaint with the CBI last month.

The bank tried to cast a veil of secrecy over the issue but Rajiv Kumar, secretary for the government's department of financial services, told a news agency that "the case relates to Nirav Modi and Gitanjali Gems".

Nirav, the 47-year-old scion of a diamond business family that was once based in Antwerp, had been charged last month with causing a wrongful loss of Rs 280.70 crore to PNB in 2017 after hatching a conspiracy with two bank officials to defraud the bank.

It now appears that the amount has ballooned and may involve more people and companies.

In the original complaint filed with the CBI, the bank had named three firms - Diamonds R Us, Solar Exports and Stellar Diamonds - and its four partners, including Nirav, and accused them of trying to gain pecuniary advantage through these fraudulent transactions.

The other partners were Nirav's wife Ami, brother Neeshal and maternal uncle Mehul Choksi, who owns Gitanjali Gems.

The two bank officials named in the FIR were Gokulnath Shetty, who retired as deputy manager of the bank last year, and a junior officer, Manoj Hanumant Kharat.

Choksi has already tried to distance himself from his nephews and said in a media release last week that he had retired from Diamonds R Us in 1999.

In its original complaint, PNB had claimed that its officials had fraudulently issued a total of eight letters of undertaking (LoUs) worth $44.2 million (Rs 280 crore) without following the prescribed procedure and failed to make entries in the banking system to avoid detection.

The LoU is a contractual undertaking that commits the banker of a local entity to honour any liability of a third party should something go wrong with the transaction between the buyer and the seller.

The LoUs had been issued in favour of the Hong Kong branches of Allahabad Bank and Axis Bank. "It transpires that buyers' credit based on fake LoUs might have also been paid through the Nostro account," PNB said in its complaint.

A nostro account is a bank account opened with an overseas bank (in this case Allahabad Bank) that contains the deposits that belong to a local bank (PNB). The nostro account is meant to carry out international trading transactions.

The estimated scale of the fraud of Rs 11,000 crore is more than eight times PNB's net profit of Rs 1,325 crore in the financial year ended March 2017. The crisis could impact the bank's profitability this year.

Investors were spooked by the developments and the PNB stock plunged 9.8 per cent to close at Rs 145.80 on the Bombay Stock Exchange.


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