State-owned Punjab National Bank (PNB), in a regulatory filing to the Bombay Stock Exchange (BSE) Wednesday, said it had detected fraudulent transactions worth $1,771.7 million (over Rs 11,000 crore) in its mid-corporate branch in south Mumbai. At least ten employees of PNB have been suspended.
These transactions, sources said, involved a few firms promoted by billionaire diamond jeweller Nirav Modi who was initially booked by the CBI in an alleged Rs 280-crore cheating case after it received a complaint from the PNB on January 29.
The bank, sources said, has now found that the total “unauthorised transactions” by Modi’s firms were worth $1,771.7 million. The bank filed a second complaint with the CBI on February 13.
Sources said the Enforcement Directorate (ED) has registered a case under the Foreign Exchange Management Act (FEMA) to probe the transactions. The agency has sought documents related to the case from the CBI. While the CBI will probe the alleged involvement of bank officials, the ED will look into violation of foreign exchange and anti-money laundering norms if any, sources said.
The Reserve Bank of India (RBI) too is looking into the alleged illegal transactions. “The RBI is investigating these transactions… how it happened and the extent of fraud,” a top banking source said.
It’s learnt that the alleged role of three-four Indian banks, which offered credit based on letters of undertaking (LOU) issued by PNB, will also be probed. The RBI is expected to inspect the books of PNB and other banks.
The alleged Rs 11,000 crore fraud at PNB assumes significance since the money in question is nearly one-third of its total market capitalisation of Rs 35,365 crore and 2.55 per cent of the total loan book of Rs 4.5 lakh crore as of December 2017.
The PNB said these alleged transactions are contingent in nature and the liability arising out of these on the bank will be decided based on the law and genuineness of underlying transactions.
“The matter was already referred to law enforcement agencies to examine and book the culprits as per law of the land. The bank is committed to clean and transparent banking,” PNB said.
Rajiv Kumar, Secretary, Department of Financial Services, said the case is an isolated one that dates back to 2011.
Last month, PNB received capital infusion of Rs 5,473 crore as part of a government plan to strengthen the balance sheet of ailing public sector banks. The bank reported gross non-performing assets (NPA) of Rs 57,519 crore at the end of the quarter ended December 31, up 3.4 per cent from a year ago. The bank reported a net worth of Rs 38,096.45 crore for FY 17.
On January 31, the CBI registered a FIR against Nirav Modi, his wife, brother and uncle Mehul Choksi under Indian Penal Code (IPC) sections related to criminal conspiracy, cheating and provisions of the Prevention of Corruption Act. The FIR said a few public servants “committed abuse of official position to cause pecuniary advantage to Diamonds R Us, Solar Exports, Stellar Diamonds” — all promoted by Nirav Modi.
Modi, his wife, brother and Choksi are partners in these three firms, the CBI FIR said.
According to the earlier complaint of the PNB, two of its employees “fraudulently “ issued eight LOU and “transmitted SWIFT instructions” to overseas branches of Indian banks to raise buyers’ credit for Modi’s firms without “making entries in the bank system”.
The bank, in its complaint, alleged that fraudulent issuance of LOU took place on January 16 for and on behalf of the accused firms which approached the bank and presented a set of import documents to the branch with the request to allow buyers’ credit for making payments to overseas suppliers.
The bank officials requested the firms to furnish 100 per cent cash margin for LOU for raising buyers’ credit. The firms contested this, saying they had availed this facility in the past too, the FIR alleged. However, branch records did not reveal details of any such facility granted to the firms, it said.
The bank alleged that a deputy manager, who has since retired, and another employee had fraudulently issued LOU totalling $4.42 crore, equivalent to Rs 280.70 crore, for the Hong Kong branches of two Indian banks for and on behalf of Diamonds R Us, Solar Exports, Stellar Diamonds.
Email and phone calls to PNB and Nirav Modi’s spokesperson Wednesday did not elicit any response.
On Wednesday, the shares of PNB dropped as much as 9.81 per cent to close at Rs 145.80 a piece.