India's federal investigators close bank branch at heart of fraud (updated)

Gitanjali Gems

19/02/2018 07:19

(Adds details) 
    By Devidutta Tripathy and Aditya Kalra 
    MUMBAI/NEW DELHI, Feb 19 (Reuters) - Indian investigators 
closed down a branch of a state-run bank that is at the heart of 
a $1.77 billion fraud and questioned more of its employees as 
they probed the biggest scam in the country's banking history, 
police sources said on Monday. 
    Three people, including two employees of Punjab National 
Bank (PNB), India's second largest state-run lender, were 
arrested and presented before a Mumbai court over the weekend in 
the case that involves billionaire jeweller Nirav Modi. 
    The Central Bureau of Investigation (CBI), which is leading 
the probe, pasted a notice on the branch premises in south 
Mumbai barring anyone from entering the office.  
    The bank has said that the two employees arrested by police 
colluded with companies belonging to jeweller Modi and another 
jeweller Mehul Choksi. They issued fraudulent letters of 
undertaking to overseas branches of other Indian banks which 
lent money to the jewellers based on the guarantee from PNB. 
    All the letters of undertaking were issued by the two 
employees who were working at the Brady Road branch in south 
Mumbai. 
    Police searched the bank premises on Sunday and also 
questioned five more PNB officials, a source said, taking the 
total number bank staff who have been questioned so far to 11. 
Police also questioned some executives from Nirav Modi's group, 
the source said. 
    PNB shares slid for a fourth straight day on Monday, falling 
6.7 percent by 0614 GMT. The sell off has wiped out about $1.7 
billion, or more than a quarter of the bank's market value, 
since it disclosed the fraud last Wednesday. Other bank stocks 
with exposure to the fraudulent transactions that PNB says began 
in 2011 also fell.  urn:newsml:reuters.com:*:nL4N1Q90QE 
    UCO Bank  UCBK.NS , another state-run lender, said over the 
weekend it had nearly $412 million in exposure to the fraudulent 
transactions carried out at PNB, sending its shares down more 
than 12 percent in Monday trading. 
    Union Bank of India  UNBK.NS  and State Bank of India 
 SBI.NS  are among other lenders which have said they had 
exposure to the fraudulent transactions. 
    Jeweller Modi, whose clients include Hollywood stars such as 
Kate Winslet and Dakota Johnson, has not commented on the 
allegations. Police have said Modi and his family left India 
before PNB filed a complaint on the alleged fraud. 
    Including direct loans given to companies of Modi and 
Choksi, Indian banks are at the risk of taking a hit of more 
than $3 billion after the fraud, according to an internal tax 
department note seen by Reuters.  urn:newsml:reuters.com:*:nL4N1Q707R 
 
 (Editing by Sanjeev Miglani and Raju Gopalakrishnan) 
 ((sanjeev.miglani@thomsonreuters.com; +91 11 4178 1020; Reuters 
Messaging: sanjeev.miglani@thomsonreuters.com@reuters.net)) 
 
Keywords: PUNJAB NATL BANK FRAUD/PROBE