PNB may be given 1 year to provision against Rs 12,646 cr fraud

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 the extraordinary situation created by unearthing of this mega fraud.

There is no precedence of fraudulent Letters of Undertaking (LoUs) being issued; so the RBI is likely to allow PNB to make provisions against the fraud not exceeding four quarters.

Fraudulent credit

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% 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 uncle 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).

Investigation 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 businessmen duo under money laundering provisions.

CBI FIR against Modi  

On Wednesday, the CBI registered a fresh case against billionaire jeweller Nirav Modi in connection with the alleged fraud in credit facilities extended by PNB, causing a loss of Rs 321 crore to it.

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.  

This is the second CBI FIR in which Modi has been named.