The Reserve Bank may provide four quarters to Punjab National Bank (PNB) for making provisions against the country’s biggest ever banking fraud of Rs 12,646 crore allegedly masterminded by billionaire diamantaire Nirav Modi. The bank has written a letter to the banking sector regulator seeking its opinion on making provisions for the fraud, sources said. Although there is a direction of the RBI on provisioning to be made in case of loan fraud, the bank is taking pre-emptive action to deal with extraordinary situation created by unearthing of this mega fraud. There is no precedence of fraudulent Letter of Undertaking (LoUs) issued earlier, so the RBI is likely to allow PNB to make provision against the fraud not exceeding over four quarters.
Last month, PNB had lodged an FIR with CBI stating that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16 this year. At the time, PNB had said it was digging into records to examine the magnitude of the fraud. In the complaint, PNB had named three diamond firms — Diamonds R Us, Solar Exports and Stellar Diamonds — saying they had approached it on January 16 with a request for buyers’ credit for making payment to overseas suppliers.
The bank sought 100 per cent cash margins for issuing LoUs for raising buyers’ credit, which was contested by the firms saying they had availed of the facility from as early as 2010. Nirav Modi, his wife Ami, brother Nishal and Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and New York.
Among those named is a deputy manager, Gokulnath Shetty, who was posted at PNB’s foreign exchange department in Mumbai since March 31, 2010. He had allegedly along with another official Manoj Kharat fraudulently issued LoUs to these firms without following prescribed procedure or making entries in the banking system, avoiding detection of transactions. In 2015, Bank of Baroda — another public sector bank — had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 6,000 crore (slightly less than USD 1 billion at that time).
Investigations revealed major irregularities, as the forex transactions were done mainly via advance remittances for import, through newly-opened current accounts. Heavy cash transactions — sometimes four or five times a day — were also noticed. The Enforcement Directorate, under the revenue department of the finance ministry, had arrested the businessman duo under money laundering provisions.
Yesterday, the CBI has registered a fresh case against billionaire jeweller Nirav Modi in connection with the alleged fraud in credit facilities extended by Punjab National Bank, causing a loss of Rs 321 crore to it. The action has been taken on a complaint by the bank on March 4, they said. The CBI has named Modi, then president (finance) of his Firestar Diamonds International Limited Vipul Ambani, chief finance officer Ravi Gupta, other directors and officials of the company, and unidentified public servants of the bank, they said. This is the second CBI FIR in which Modi has been named.