Billionaire jeweller under lens as PNB jolted by Rs 11,300 crore fraud

MUMBAI: In one of the biggest fraud cases to hit Indian banking, Punjab National Bank (PNB) informed stock exchanges on Wednesday that it has been hit by embezzlement amounting to Rs 11,300 crore at one of its branches in Mumbai. Although the bank did not name any person or company, it had lodged a complaint with CBI on January 31 naming billionaire diamond merchant Nirav Modi and a few others in a Rs 280-crore fraud.
The complaint also mentioned his wife Ami Modi, his brother Nishal Modi and his uncle Mehul Choksi, MD of Gitanjali Gems — a listed company. Two PNB officials, Gokulnath Shetty and Manoj Kharat, were also named. The Modis and Choksi are partners in three businesses — Diamonds R US, Solar Exports and Stellar Diamonds.
The Enforcement Directorate has also initiated a money laundering case against the Modis, agencies had reported on Wednesday. The news sent PNB stocks tumbling nearly 10% lower on the Bombay Stock Exchange. The fraud is worth almost eight times the bank’s 2016-17 profit and nearly a third of its market cap on Wednesday’s closing price. In a matter of a few days, the scale of the fraud has grown from Rs 280 crore to over Rs 11,300 crore.
The alleged irregularities are expected to impact not just PNB, which had shown signs of recovery in recent months after grappling with a pile of bad debt, but several other banks.
The irregularities started sometime in 2011 but went undetected until a few weeks ago. People in PNB said the fraud came to light after an executive, named by CBI, retired last summer ending the unsanctioned rollover of letters of undertaking, based on which the companies were raising funds overseas.

“The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance. Based on these transactions other banks appear to have advanced money to these customers abroad,” the country’s third largest public sector bank said in its filing.
A senior bank official acknowledged that the fraud was a “systemic failure” and should not have lingered for so long without detection. The revelations have prompted the finance ministry to seek inputs from other banks. Financial services secretary Rajiv Kumar said it appeared to be an isolated case and was not going to impact other lenders.
"The finance ministry has taken proactive steps by asking the lender to report the matter to CBI and Enforcement Directorate (ED) so that action can be taken quickly," he told a news agency.