This could be the biggest fraud in the Indian banking system where the state-run lender Punjab National Bank (PNB) reported unauthorised transactions worth Rs.11,500 crore in one of its branches located in south Mumbai.
The Enforcement Directorate has now registered a money laundering case which also involves Mumbai-based billionaire diamond merchant Nirav Modi. The case has been registered by the Central Bureau of Investigation(CBI) against Nirav Modi as well as on his business associates and also on a serving PNB official plus a retired deputy manager of Punjab National Bank.
Through a communication made to the stock exchanges on Wednesday morning, India’s second largest lender said it has detected some unauthorised transactions in one of its branches, done solely for the benefit of some selected account holders. The bank also stated that the sum total of such transactions is $1771.69 million. The communication also referred that the matter is bow in the hands of law enforcement agencies to examine and book the culprits according to the law of the land.
This whole incident coming into limelight made the bank’s stock plunge almost 10% through the day and also the erosion of its market capitalisation by nearly Rs.3,900 crore at the end of trading on the Bombay Stock Exchange.
The Finance Ministry swung into action immediately and asked all the banks to carry out a clean-up exercise. Financial Services Secretary Mr Rajeev Kumar said that the government will not tolerate the working of ‘unclean banks’ while adding that the PNB case is an isolated one and the CBI is looking into the case, and till now 10 employees of the bank have been suspended.
Financial Services Joint Secretary Lok Rajan said that, “I don’t think this is out of control or too big a worry at this point”.
Anveesh Nepalia, the deputy general manager of PNB’s zonal office filed a complaint on January 29 regarding this whole issue with the CBI.
Nepalia in his complaint took names of Nirav Modi, Nishal Modi, Ami Modi and Mehul Choksi, all of them are partners at Diamond R US, Solar Exports and Stellar Diamonds. They conspired with a retired bank employee and a current staffer to do this kind of fraud with the bank. The retired PNB official’s name is Gokulnath Shetty and the employee who was currently working with the bank is Manoj Kharat both of them fraudulently issued LoUs worth Rs.280 crore to these companies in 2017, bypassing a lot of procedures and bank’s process.
Bank officials however caught hold of the deceitful transactions on January 16, 2018 when these three firms approaching the bank branch with a set of import documents and a request to allow buyers’ credit for making payment to the overseas suppliers.
As there wasn’t any sanction limit in the name of these firms, the bank branch insisted on 100% cash margin for issuing the requested LoUs for raising buyers’ credit, the firms however said that they have availed this facility in the past, but the branch records did not have details of any such facility.
The accused including the bank staff and diamond merchants have been booked for cheating and criminal conspiracy under the Indian Penal Code. They are also charged for criminal misconduct by a public servant under the Prevention of Corruption Act.
Punjab National Bank has alleged that the accused employees issued a series of LoUs to the mentioned three companies in favour of the Hong Kong branches of Allahabad Bank and Axis Bank.
