Mumbai: Punjab National Bank (PNB) has declared Gitanjali Group a fraud entity after it discovered that group companies, along with firms helmed by jeweller Nirav Modi, were involved in fraudulent transactions worth Rs11,4000 crore through letters of undertaking (LoUs) issued by the bank, said five people aware of the matter.

According to the Reserve Bank of India’s (RBI’s) regulations, a company is declared a fraud based on provisions of the Indian Penal Code, which entails, among other things, misappropriation, criminal breach of trust, and irregularities in foreign exchange transactions. Once a company is declared a fraud by a bank, other lenders will have to follow suit. The regulations mandate that where accounts are classified as fraud, banks are required to make provisions to the full extent immediately, irrespective of the value of security or collateral.

At the end of September, Gitanjali had a net debt of Rs6,874.97 crore. Its lenders include ICICI Bank and IDBI Bank, according to information in its 2016-17 annual report. RBI regulations state that if a bank is unable to make the entire provisions, then it can do so over four quarters. The consortium of lenders to Gitanjali met on Thursday to take stock of the situation.

Gitanjali Group said in an emailed statement on Wednesday that it had not had any “unauthorised" dealings with PNB or its officials. “All allegations being directed at us seem premature considering the matter is still under investigation," the note said.

In a late-night stock exchange notification on Wednesday, PNB said it submitted a fraud report on 7 February to RBI after confirming the liability of Gitanjali Group companies. It also said that it had filed a criminal complaint for registering a first information report (FIR) against the accused for the offences of cheating and fraud.

Shares of Gitanjali have fallen 40% since PNB made the fraud disclosure on Tuesday. On Friday, the stock closed 19.94% lower at Rs37.55.

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