PNB fraud case: More banks may face heat of jewellers' fraud

Diamond king Mehul Choksi too gets caught in maelstrom.

New Delhi: The extent of the malfeasance in the Nirav Modi case may well be far larger and the malaise may have spread to many more banks. It is already being alleged that Allahabad Bank’s exposure to the LoU scam is approximately Rs 4,000 crore while Axis Bank would be in the vicinity of Rs 1,000 to Rs 2,000 crore. A LoU or letter of undertaking is a bank guarantee issued for overseas import payments.

In a cautionary notice sent to 30 public and private banks, PNB said a preliminary investigation has suspected that a fraud was carried out by the accused in collusion with the staff. On the basis of fraudulent LoUs, PNB said other banks appear to have advanced money to these customers abroad. On Thursday, the bank’s chief executive disdainfully accepted that “this cancer that’s been going on since 2011, we have brought it out and we are resolving it.”

He said the bank would honour all its commitments. PNB claims that the scam was revealed when Nirav Modi’s companies sought a fresh loan last month. The officials who had helped them earlier had retired and when the bank insisted on guarantees - 110 per cent margin because of no sanction of fund-based and non-fund based Limits, the companies stated that they had used such a facility for last so many years. When the bank started investigating, it discovered fraud LoUs in abundance.

( Source : Deccan Chronicle. )
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