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PNB may receive one-year period to provision against Rs 12k crores fraud
By TOG News Service
Mar 09, 2018

TOG News Service, NEW DELHI, MAR 09, 2018: THE Punjab National Bank (PNB) may receive a time period of four quarters, or one year, for making provisions against the country's biggest ever banking fraud of Rs 12,646 crore perpetrated by billionaire diamond trader, Mr Nirav Modi. In this regard, the bank had written to the Reserve Bank of India, seeking its opinion on making provisions for the fraud. 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. Since there is no precedence of fraudulent Letter of Undertaking (LoUs) issued earlier, the RBI may allow the PNB to make provision against the fraud, not exceeding over four quarters.

Last month, the PNB had lodged an FIR with the Central Bureau of Investigation (CBI), stating that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16 this year. At the time, the PNB had stated that it was digging into records to examine the magnitude of the fraud. In the complaint, the PNB had named three diamond firms, namely Diamonds R Us, Solar Exports and Stellar Diamonds, further stating that they had approached it on January 16 with a request for buyers' credit for making payment to overseas suppliers. The bank sought 100% 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.

Mr Nirav Modi, his spouse, brother and co-accused Mr 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. Also among those named is a deputy manager, Mr Gokulnath Shetty, who was posted at PNB's foreign exchange department in Mumbai since March 31, 2010. He had allegedly along with another official, Mr Manoj Kharat, fraudulently issued LoUs to these firms without following prescribed procedure or making entries in the banking system, avoiding detection of transactions.

Moreover in 2015, the Bank of Baroda had brought to light a scam in which two Delhi-based businessmen had cheated it of Rs 6,000 crores. Investigations had revealed major irregularities, as the forex transactions were done mainly via advance remittances for import, through newly-opened current accounts. Heavy cash transactions, stated to be about four or five in a day, were also noticed. Thereby, the Enforcement Directorate (ED), had proceeded to arrest the businessman duo under money laundering provisions.

In the present case, the CBI had registered a fresh case against Mr Nirav Modi in connection with the alleged fraud in credit facilities extended by Punjab National Bank, causing a loss of Rs 321 crores to it. Such action was taken on a complaint by the bank on March 4. The CBI has named Mr Modi, then president (finance) of M/s Firestar Diamonds International Limited, Mr Vipul Ambani, chief finance officer Mr Ravi Gupta, along with other directors and officials of the company, apart from unidentified public servants of the bank. This would be the second CBI FIR in which Modi has been named.