• FxWirePro: pnb/modi scandal unravels in india; pmo failed to take action despite warning

    Source: FxWire Pro - Commentary / 16 Feb 2018 00:20:27   Eastern Standard Time

    A major financial scandal is unraveling in India involving the country’s second biggest state-owned lender Punjab National Bank and businessman Nirav Modi, as well as Gitanjali Gems. The scandal came to highlight earlier this week when in a regulatory filing, Punjab National Bank highlighted the fraud of INR 11,300 crore or $1.77 billion. At the center of the scam is billionaire diamond jeweler Nirav Modi, his wife Ami, brother Nishal and maternal uncle Mehul Chinubhai Choksi. They are partners in Diamonds R US, Solar Exports, and Stellar Diamonds. Reports also suggest that several PNB employees were involved in the scam including bank manager Gokulnath Shetty.

    Last week, PNB had lodged an FIR with CBI stating that fraudulent LoUs (Letter of Undertaking) worth INR 280.7 crore were first issued on 16 January. A LoU is a letter of comfort issued by one bank to branches of other banks, based on which foreign branches offer credit to buyers. At the time, PNB had said it was digging into records to examine the magnitude of the fraud. The red flags first went up when the above-mentioned companies approached the banks for new LoUs. When the banks asked for 100 percent cash margin, the firms railed against the decision saying that they have availed the facilities since 2010.

    Shetty, allegedly along with other officials namely Manoj Kharat fraudulently issued Letter of Undertakings (LoUs) to the above-mentioned firms without following prescribed procedure or making entries in the banking system, avoiding detection of transactions. The LoUs were mostly used for availing credit at Hong Kong-based branches of some other Indian banks.

    The scandal is getting out of proportions as it has dragged Prime Minister Modi into it, who was seen with fraudster Nirav Modi at the last Davos held in January. Mr. Nirav reportedly fled the country just before the FIR was filed against him and was seen with the Prime Minister of India just a week ago. It also came to highlight that a letter was sent to the Prime Ministers’ Office by Mr. Hari Prasad warning of the scam back in July 2016. However, PMO either failed or deliberately didn’t take up any action. Here is a link to the letter, https://www.scribd.com/document/371580560/Annexure-a4hari-Prasad-Complaint?secret_password=hUKV3UTihf4hWLuVJQzt#from_embed

    This is, however, just the tip of the iceberg. Several companies and businessmen have taken up huge loans during the era of ultra-easy money after 2008/09 from state-owned banks and have either defaulted or fled the country. According to reports, non-performing assets at India's state-owned banks have reached $148 billion. Banks on the other, hand faced with huge non-performing assets have charged retail customers higher interest rates squeezing the so-called middle-class citizens.