India's PNB bank fraud likely to swell beyond $2 billion mark

Gitanjali Gems

06/03/2018 12:00

By Abhirup Roy and Devidutta Tripathy
    MUMBAI, March 6 (Reuters) - The extent of the unravelling
fraud at India's state-run Punjab National Bank  PNBK.NS  could
rise beyond the nearly $2 billion mark so far outlined by the
lender, according to a source involved in the probe and court
documents reviewed by Reuters.
    The source, who asked not to be named, said investigators
had not yet recovered all the papers and loan guarantees
allegedly issued by rogue employees of the bank, and
consequently believed the bank's exposure could be greater than
revealed so far.
    In what has been dubbed as the biggest fraud in India's
banking history, Punjab National (PNB) and police have accused
two jewellery groups - one controlled by diamond tycoon Nirav
Modi and the other by his uncle Mehul Choksi - of colluding with
bank employees to get credit from overseas banks using
fraudulent guarantees.
    Both Choksi and Modi have denied the allegations and lawyers
for the two key accused PNB employees in the case have also said
they are innocent.
    According to court filings, the exposure to three companies
controlled by Modi has been estimated at 64.98 billion rupees
($999 million), while firms controlled by Choksi have been
accused of defrauding the bank of 61.38 billion rupees.
    India's federal police, the Central Bureau of Investigation
(CBI), has told a Mumbai court that the amount involving Modi's
companies was likely to go up, according to the source and court
filings, copies of which have been reviewed by Reuters.
    The CBI told the court that its investigation had found that
the fraudulent issuance of letters of undertaking (LoUs), or
guarantees, through a Mumbai branch of the bank had been going
on since 2010. 
    In papers filed on Monday, the CBI also said PNB did not
have all the documents related to the LoUs, since those were
returned to the borrower.
    "Most of these documents are not yet recovered. The size of
the fraud has now gone (up)...and the same is likely to go even
higher," the CBI said in the court filing.
    PNB did not respond to requests on Tuesday seeking comment
on the risk of its exposure rising further.
    The bank initially reported to authorities on Jan. 29 that
the jewellery groups had defrauded it of 2.8 billion rupees, or
about $44 million. On Feb. 14 it said the fraud sum had reached
$1.77 billion after a detailed investigation.
    It raised the amount further to nearly $2 billion last week,
saying it had discovered some $200 million more in fraudulent
letters of credit, another form of credit guarantee, issued to
Choksi's Gitanjali  GTGM.NS  group.

 (Reporting by Abhirup Roy and Devidutta Tripathy
Editing by Euan Rocha and Alex Richardson)
 ((devidutta.tripathy@thomsonreuters.com; +91 84518 40430;
Reuters Messaging:
devidutta.tripathy.thomsonreuters.com@reuters.net))