PNB exposure to alleged fraud swells to well over $2 billion

Punjab National Bank, however, has clarified that the Rs942 crore cited is not a new fraud but recall of credit limits to Mehul Choksi

Abhirup Roy, Krishna V. Kurup
Updated13 Mar 2018
The new disclosure takes PNB’s overall exposure in the still unravelling fraud case to well over the $2 billion mark. Photo: Mint
The new disclosure takes PNB’s overall exposure in the still unravelling fraud case to well over the $2 billion mark. Photo: Mint

Mumbai: Punjab National Bank (PNB) has told police it has uncovered additional exposure of about Rs942 crore ($145.2 million) in connection with a huge alleged fraud, according to a court filing seen by Reuters.

The bank, however, clarified, that the Rs942 crore is not a new fraud but recall of credit limits. “The amount of Rs942 crore were the regular limits sanctioned to Geetanjali Group under consortium lending, and were standard credit exposure at the time of detection of the fraud. Now, this exposure is being added to the existing fraudulent amount. This amount has nothing to do with any new fraudulent LoUs/LoCs,” PNB said in a statement, a copy of which was seen by Mint.

In what has been dubbed the biggest bank fraud in India’s 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 jewellery 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 Rs7,080 crore.

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 Rs6,138 crore of the alleged PNB fraud amount to Gitanjali, and nearly Rs6,500 crore to companies controlled by Modi.

PNB has also alleged Modi’s companies cheated it by a further Rs322 crore, 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 unravelling fraud case to well over the $2 billion mark.

Who foots the bill?

The PNB 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 PNB fraud, with several lenders that have either lent to the jeweller 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 honour only “bona fide” commitments, arguing other banks that lent to the jeweller groups shared in the blame by not carrying out adequate checks.

The Economic Times, citing unnamed sources, reported earlier on Tuesday that PNB would honour claims by peer banks that issued credit to the jewellers, 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 an RBI rate hike in the near term, with the sector index gaining 2.3%. Reuters

Mint’s Remya Nair in New Delhi contributed to this story.

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