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

Gitanjali Gems

06/03/2018 15:34

(Updates with one more arrest made, finance minister comment)
    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 the biggest fraud in India's banking
history, Punjab National Bank (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
($1 billion), 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.
    Investigators widened their probe on Tuesday with the
government's Serious Fraud Investigation Office beginning to
call senior executives from Gitanjali's creditor banks for
questioning over their loan exposure, separate sources with
direct knowledge of the probe said.
    Police also arrested on Tuesday Vipul Chitalia, a vice
president at Gitanjali, taking the total number of people
arrested so far in the case to 19. Chitalia, who police say was
the authorised signatory for Gitanjali for the allegedly
fraudulent transactions, was detained by Indian immigration
authorities on his arrival from Bangkok.
    Jeweller Modi along with his family left India in January
before PNB filed a police complaint, according to police, who
also say Choksi is out of India. Their whereabouts are not
known.
    PNB shares fell 2.3 percent on Tuesday in a Mumbai market
 .NSEI  that slipped 1.1 percent. The stock has lost almost 40
percent of its market value since disclosing the fraud on Feb.
14.
    Finance Minister Arun Jaitley told parliament on Tuesday
that PNB had "sound fundamentals and strong growth potential"
with its high share of low-cost current and savings accounts
deposits, stabilising bad loans and scope to raise funds by
selling non-core assets.
    Axis Bank  AXBK.NS , a private sector lender, said in a
stock exchange filing the Serious Fraud Investigation Office had
sought information from it on the accounts of Nirav Modi and
Gitanjali groups of companies, adding its exposure to both
groups was about 2 billion rupees.
($1 = 64.9250 Indian rupees)

 (Reporting by Abhirup Roy and Devidutta Tripathy; Additional
reporting by Nigam Prusty in New Delhi;
Editing by Euan Rocha and Alex Richardson)
 ((devidutta.tripathy@thomsonreuters.com; +91 84518 40430;
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