Fraud saw light after accomplice retired
PNB has charged that foreign branches of other Indian banks may also be involved in the fraud.
New Delhi: The Rs 11,400-crore fraud in the Punjab National Bank (PNB) was detected when a bank official involved with Nirav Modi retired.
After this, firms associated with him again approached PNB’s Mumbai branch asking for letters of undertaking (LoUs).
However, the PNB officials at the branch found that there was no fund or non-fund based sanction against Mr Modi’s firms by bank. So they asked these firms to furnish 110 per cent margin against the LoUs these firms wanted to be issued.
But these companies insisted they were “undertaking such transactions for the past so many years” without providing any margin. This raised alarm bell in the bank and led to investigation that unveiled the biggest fraud.
PNB has charged that foreign branches of other Indian banks may also be involved in the fraud.
“There is clear criminal connivance of the group companies of Nirav Modi and Gitanjali Gems with our branch official and also, apparently, with officials of overseas branches of Indian banks,” said PNB in a letter to other banks.
This is because Letter of undertaking were opened by Mr Modi and his associates in favour of overseas branches of Indian banks for import of pearls for a period of one year, for which as per RBI guidelines the total time period is 90 days from the date of shipment.
“This stipulation was overlooked by overseas branches of Indian banks, who are also required to follow RBI guidelines,” it said.
The buyer’s credit availed against the fraudulent LoU was either used to retire import bills or replenish the maturing buyer’s credit of some other banks.