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Explainer: How Punjab National Bank fell victim to India's biggest bank fraud

Explainer: How Punjab National Bank fell victim to India's biggest bank fraud

State-owned Punjab National Bank (PNB) on Wednesday said it has detected a Dollars 1.77 billion (about Rs 11,400 crore) scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.

On Wednesday, PNB said in a regulatory filing it had discovered fraudulent and unauthorised transactions totalling $1.77 billion at the Mumbai branch.

Last week, Indian federal agents said they had launched an investigation into billionaire jeweller Nirav Modi, one of the country's richest men, over accusations that he and others defrauded PNB of $44 million. Why were no red flags raised in overseas bank branches of Indian banks?

On Thursday, the Enforcement Directorate launched a nationwide raid on the offices, showrooms and workshops of Nirav Modi.

The bank said it has informed law enforcement agencies about the transactions.

According to FortuneIndia, "He was born into a Gujarati family and founded Firestar Diamond".

PNB has lodged a complaint with the CBI against Nirav Modi about the fraudulent transactions.

Further, after the detection of PNB fraud, PNB will have to go for higher provisioning, which will hurting the finances of bank.




When Nirav Modi companies asked for LoUs for raising buyers' credit after the retirement of the PNB employee involved in the scam, the Punjab National Bank sought 100 per cent cash margins for issuing LoUs.

The country's central bank, the Reserve Bank of India, declined to comment. And on Wednesday, the ED also registered a money laundering case in 2017 cheating case. Further it poses a challenge as around two years back 12 other lenders were fined for violating rules on approximately $1 billion of foreign-exchange deals.

Based on these fraudulent LoUs, Nirav Modi firms took loans from overseas branches of other Indian lenders like Allahabad Bank and Axis Bank to pay their suppliers. The FIR said a few public servants "committed abuse of official position to cause pecuniary advantage to Diamonds R Us, Solar Exports, Stellar Diamonds" - all promoted by Nirav Modi.

Earlier today, while addressing a press conference, Congress leader Randeep Surjewala said, "On 26 July 2016, Prime Minister was handed with all papers regarding Nirav Modi and one of his relative".

Modi, his wife, brother and Choksi are partners in these three firms, the CBI FIR said.

In 2015, Bank of Baroda had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 6,000 crore.

The upcoming days will certainly be very interesting for India's banking industry.

Shares in PNB, the fourth-biggest among all Indian banks by assets, closed nearly 10 percent down on Wednesday.


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