Top bank officials summoned as PNB fraud probe widens

Mumbai: Senior executives of private sector lenders ICICI Bank Ltd and Axis Bank Ltd appeared before the Serious Fraud Investigation Office (SFIO) on Tuesday as investigative agencies expanded their probe into the alleged bank fraud by companies linked to Nirav Modi and his uncle Mehul Choksi.

SFIO and Enforcement Directorate (ED) are investigating 31 private and state-run banks that in a consortium gave working capital loans worth Rs5,280 crore to Choksi-controlled Gitanjali Gems Ltd starting 2009, a person with direct knowledge of the matter said.

This is separate from the Rs12,636 crore Punjab National Bank (PNB) fraud investigation, which involved fake letters of undertaking, he added. 

ICICI Bank Ltd has an exposure of Rs750 crore to the Gitanjali group of companies and Rs500 crore to Gitanjali Gems. PNB has an exposure of Rs900-1,000 crore, the highest among the lenders. 

As soon as the news of investigative agencies summoning bank chiefs became public, the Sensex and Nifty indices erased their initial morning gains.

The benchmark indices shed more than 1% on Tuesday, declining to their lowest closing levels in 2018. BSE’s 30-share Sensex fell 1.27% to close at 33,317.20 points, while the National Stock Exchange’s 50-share Nifty shed 1.06% to close at 10,249.25 points. ICICI Bank contributed heavily to the Sensex’s losses, dropping 2.64%. Smaller rival Axis Bank fell 1.31%. 

SFIO, the investigative agency under the ministry of corporate affairs (MCA), summoned Chanda Kochhar, managing director and chief executive officer of ICICI Bank, and Axis Bank CEO Shikha Sharma, or their authorized representatives, to seek information on the working capital loan given by the consortium of bankers to Gitanjali Gems, an MCA official said, requesting anonymity.

“To provide assistance to the investigating authorities, representatives of ICICI Bank continue to engage actively and provide requisite inputs as routinely done in the case of all investigating authorities who approach the Bank,” ICICI Bank said in a statement to the exchanges.

Axis Bank also confirmed in a statement to exchanges that SFIO has sought information on the accounts of Modi and the Gitanjali group.

The bank said it has an exposure of Rs200 crore to the group.

Other banks that were a part of the consortium will also be summoned in due course, said the MCA official.

Meanwhile, the ED has also sought explanations from the 31 banks that extended the working capital loans to the jewellery maker. 

“Queries and explanations have been sought from bankers to ascertain the total banking sector’s exposure to Modi and Choksi firms. Some of the banks have already started replying,” said an ED official.

The meeting with select banks with relatively higher exposure to Gitanjali will help ascertain the actual size of the scam, he added.

Even bankers feel that the magnitude of the scam is still not clear. “The liability is still not established for the banks, given the web of companies related to Choksi and Modi,” said a senior official at a state-run bank. 

Ramesh Vaidyanathan, founder and managing partner at Advaya Legal, said that as long as the loans were given at arm’s length, then the banks are in the clear.

“If the banks have all transactions properly documented with proper security and guarantees, then I do not foresee any issues. However, the government, during the course of investigations, should ensure that it does not become a phishing exercise as it would spread panic across the banking sector. Any investigations should be more document-oriented rather than driven through summons,” said Vaidyanathan. 

Separately, the ED is looking to file a charge sheet in the matter as early as next month to help it seek extradition. Modi and Choksi, the key accused, are not in India and have not responded to summons from the ED and the Central Bureau of Investigations, following which a special prevention of money laundering court on Saturday issued non-bailable warrants against them. “For the extradition plea to work, we need to file a charge sheet. ED is looking to file a charge sheet as early as next month,” said the ED official. 

SFIO is currently investigating the fraud at PNB for violation of the Companies Act and also whether the banks’ funds were siphoned off. The agency is looking at 114 firms, including seven limited liability partnership firms. SFIO has been asked by the MCA to submit its report in June. The National Company Law Tribunal has also allowed the government to attach 64 properties belonging to individuals as well as companies that are part of groups headed by Modi and Choksi to prevent the accused from alienating as well as creating any third-party interest in any of the properties.

Ami Shah and Alekh Archana contributed to this story.