Diamantaire from Antwerp Nirav Modi, who was the first Indian to be featured on the covers of Christie’s and Sotheby’s catalogues, was in the spotlight again on Wednesday, but this time for walking away fraudulently with a sum equal to about a third of Punjab National Bank’s (PNB) market capitalisation of Rs 35,365.06 crore. Modi is accused of swindling India’s second largest public sector bank of a sum of nearly $1.d billion (about Rs 11,355 crore at present exchange rates). The notification of this fraud by the bank to stock exchanges saw PNB’s stock plummet near 10% on Wednesday, wiping out about `3,850 crore of shareholder value.
In an early-morning notification to exchanges, the lender said it had detected some fraudulent and unauthorised transactions at a branch in Mumbai. The transactions benefited a few select account holders and were undertaken with the apparent connivance of bank officials. Based on these transactions, other banks advanced money to these customers abroad. “The quantum of such transactions is $1,771.69 million approximately. The matter is already referred to law enforcement agencies to examine and book the culprits as per the law of the land,” PNB said.
A bank official said Modi has verbally communicated to the bank that he would be repaying the money. However, the bank has so far not received any written communication from Modi on the same, the official said.
Three sources in the bank confirmed that the fraudulent transactions mentioned in Wednesday’s notification pertain to those of Nirav Modi, the founder and chairman of privately held Firestar Diamond.
The fraudulent transactions had come to light after PNB said in a notification on February 5, “The bank has come across a suspected fraud involving one branch wherein certain irregularities have been observed on account of people risk. The matter involving Rs 280.70 crore based on preliminary investigation report stands reported to appropriate Regulatory & Investigating Authorities, and the detailed investigation is on.”
A first information report (FIR) filed by the Central Bureau of Investigation (CBI) showed that in January, a deputy general manager in the bank’s Mumbai zonal office had filed complaint with the CBI stating that Nirav Modi, Nishal Modi, Ami Nirav Modi and Mehul Chinubhai Choksi, all partners at Diamond R US, Solar Exports and Stellar Diamonds, in conspiracy with officials of PNB, cheated the bank and caused a loss of Rs 280.70 crore in 2017.
The branch mentioned in the FIR is the mid corporate branch, Brady House, Mumbai. The FIR mentions that fraudulent letters of undertaking (LoU) were issued when the above-mentioned firms approached the bank for buyers’ credit to make payments to overseas suppliers. It further mentions that a deputy manager, Gokulnath Shetty, who was posted with the branch between March 2010 and May 2017 and worked in the foreign exchange department, together with another official, Manoj Hanumant Kharat, had issued LoUs without following prescribed procedures and without making entries in the bank’s systems.
Sources said the bank filed a second complaint on Tuesday regarding the same matter when they found out that the amount of fraudulent transactions is significantly higher. Lok Ranjan, joint secretary, department of financial services, told reporters in New Delhi, “I don’t think this is out of control or too big a worry at this point. That is my broad sense. The government will take necessary steps.”
PNB said the matter is already referred to law enforcement agencies to examine and book the culprits as per law of the land. Sources in the bank said a separate investigation team has been formed within the bank, which is helping law enforcement agencies with the investigations. The amount in question exceeds the sum of Rs 5,473 crore that the bank has been allocated as part of the government’s recapitalisation plan. It also works out to 2.3% of the bank’s total advances of Rs 4.74 lakh crore as on December 31, 2017.
Around 10 officials at the bank have been suspended in connection with this case. The Mumbai city circle office also has a new circle head since the beginning of the month, although it could not be verified if the change has any connection to these transactions.
Nirav Modi’s Firestar Diamond deals with with procurement of raw materials and also in the design, manufacture, distribution,and after-sales service of diamond-studded jewellery. It says its passion is to “make life’s important moments even more sparkling and precious”. On Wednesday, however, the PNB stock lost its sparkle due to Modi.