PNB shares reeling, but other Indian banks stabilise after giant fraud shock

The PNB complaints deal with fraudulent transactions reported from the bank’s branches and the amount involved is over Rs10,000 crore

News of a very big fraud worth whooping Rs 11,000 crore unearthed in one of the branches of Punjab National Bank (PNB) rocked the finance corridors on last Wednesday.

"The bank has detected some fraudulent and unauthorized transactions in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance", the PNB filing earlier said.

However, PNB had sent the notice after it was found that the fraud had been carried out by the perpetrators in collusion with the staff at one of the branches in Mumbai, wherein one junior level branch official unauthorisedly and fraudulently issued LoUs on behalf of some companies belonging to Nirav Modi group viz. In spite of the fact that the bank did not name any individual or organization, it had held up a protest with CBI on January 31 naming extremely rich person jewel dealer Nirav Modi and a couple of others in a Rs 280-crore extortion.

Foreign bank branches too are under investigation.

The Congress has also alleged that a whistleblower had alerted the government in 2016 about the banking fraud by Nirav Modi but the Prime Minister and Finance Minister Arun Jaitley ignored the tip.

In the stock exchange filing, PNB said that it has reported the fraud to law enforcement and investigative agencies. In the other two firms, Solar Exports and Stellar Diamonds, he never had anything to do with them, he had said.

An LOU is a letter of comfort issued by one bank to branches of other banks, based on which foreign branches offer credit to buyers. Major jewellers Gitanjali, Ginni and Nakshatra have also come under the scanner of various investigating agencies following PNB's declaration of Rs 11,400 crore fraud.

When the bank asked for 100 percent cash margin for the issuance of LoUs, the companies said that they had already availed the service in the past.

Mr Modi is yet to comment, but reports suggest about a dozen of his premises across India have been raided by police.

The PNB scam has affected other Indian banks, according to media reports, because these banks had lent money on the basis of Letter of Understanding (LoU) issued by PNB. And on Wednesday, the ED also registered a money laundering case in 2017 cheating case.

In 2015, Bank of Baroda had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 6,000 crore. Nirav, Ami, Nischal and Mehul are partners in these firms.

Meanwhile, the stock tanked almost 10 per cent on Wednesday considering the magnitude of the scam which is almost one-third the market capitalisation of PNB, he said. However, there was never a situation of default, sources in the banking industry said.

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