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The biggest fraud in Indian banking history just got bigger

AP Photo/Altaf Qadri
Shaky ground.
  • Nupur Anand
By Nupur Anand


Published This article is more than 2 years old.

Punjab National Bank (PNB), India’s second-largest government-owned lender, has said that the quantum of fraud uncovered at one of its Mumbai branches earlier this month is expected to rise by over $204 million (over Rs1,300 crore) from the $1.77 billion estimated till now.

“In continuation to our filing with stock exchanges on 14.02.2018, we have to inform that quantum of reported unauthorised transactions can increase by $204.25 million (approx),” it said in a filing to the stock exchanges late in the night on Feb. 26.

Not surprisingly, the stock has taken a beating and was down close to 6% in trade today at 9:30 am.

On Feb. 14, the New Delhi-based bank had first communicated to its shareholders the uncovering of the fraud. Bank employees, in collusion with jeweller Nirav Modi and his uncle Mehul Choksi, had siphoned off large amounts over seven years.

Letters of undertaking (LoUs) were issued by PNB employees on behalf of the bank, based on which other lenders–Allahabad Bank, Union Bank, State Bank, and Axis Bank—extended loans to Modi and Choksi. However, these loans were never repaid. In order to cover these dues, more such LoUs were issued. The whole operation remained undetected as SWIFT, the messaging service via which the LoUs were sent, is not linked to PNB’s core banking system.

A day after the scam broke out, Sunil Mehta, the managing director and CEO of PNB, said he didn’t expect the fraud to exceed the initially reported $1.77 billion. However, he had added that only the probe can ascertain this.

At present, the crime is being probed by the enforcement directorate and the Central Bureau of Investigation. The finance ministry and the Reserve Bank of India, too, have stepped in to control the damage. Meanwhile, Modi and Choksi are on the run and remain untraceable.

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