March 13, 2018 / 11:38 AM / 10 days ago

India's PNB exposure to alleged fraud swells to well above $2 billion

MUMBAI (Reuters) - India’s Punjab National Bank (PNBK.NS) has told police it has uncovered additional exposure of about 9.42 billion rupees ($145.2 million) in connection with a huge alleged fraud, according to a court filing seen by Reuters.

FILE PHOTO: The logo of Punjab National Bank (PNB) is seen on a branch office window in New Delhi, India, February 27, 2018. REUTERS/Saumya Khandelwal/File Photo

In what has been dubbed 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.

The bank accused two jewelry groups - one controlled by diamond tycoon Nirav Modi and the other by his uncle, Mehul Choksi - of colluding with rogue bank employees to secure credit from overseas lenders using fraudulent guarantees.

Both men deny any wrongdoing. Police say they left India in January, before the initial complaint was filed, and their whereabouts are unknown.

In a court filing on Tuesday police said that, including a new complaint filed by the bank, the total amount Choksi’s Gitanjali group of companies allegedly defrauded PNB of has reached 70.8 billion rupees ($1.09 billion).

A lawyer for Gitanjali group’s head, Mehul Choksi, said he was unaware of the new allegations and declined to comment.

Law enforcement agencies had previously attributed 61.38 billion rupees of the alleged fraud amount to Gitanjali, and nearly 65 billion rupees to companies controlled by Modi.

PNB has also alleged Modi’s companies cheated it by a further 3.22 billion rupees, which it said was not used for the purposes for which the loans were given.

Tuesday’s disclosure takes PNB’s overall exposure in the still unraveling fraud case to well over the $2 billion mark.

PNB did not immediately respond to requests for comment.


The alleged fraud has shaken India’s financial sector, leading to a government and central bank crackdown on lenders’ systems and practices.

Banks also continue to debate who should assume liabilities from the fraud, with several lenders that have either lent to the jeweler groups based on the fraudulent PNB guarantees, or bought the so-called letters of undertaking from the secondary market, wanting PNB to compensate them.

    PNB has said it will honor only “bona fide” commitments, arguing other banks that lent to the jeweler groups shared in the blame by not carrying out adequate checks.

    The Economic Times daily, citing unnamed sources, reported earlier on Tuesday that PNB would honor claims by peer banks that issued credit to the jewelers, but with a few caveats.

    Banking sources, however, said such an agreement was not yet a done deal.

    “We are talking. But then we have not come to a conclusion,” said a senior banker, who did not want to be named, adding that PNB had not yet provided concrete assurances of repayment.

    Another said that, although they were hopeful of arriving at an “amicable solution” on who takes the liability, it would likely need intervention by India’s central bank and the government.

    Banks would need to make provisions for any potential losses from fraud when they report results for the March quarter, said the banker.

    State bank shares rose on Tuesday after an easing in retail inflation allayed fears of a central bank interest rate increase in the near term, with the sector index .NIFTYPSU gaining 2.3 percent.

    Reporting by Abhirup Roy and Krishna V Kurup; Writing and additional reporting by Devidutta Tripathy; Additional reporting by Vishal Sridhar in Bengaluru; Editing by Euan Rocha and Alex Richardson

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