Massive fraud of Rs 11,300 crore detected by Punjab National Bank

Billionare diamond merchant and jewellery designer, Nirav Modi, is one among others, who has been booked by the CBI in connection with the Rs 11,300 cr fraud.

The Hush Post: A fraud of  over Rs 11,300 crore involving a billionaire diamond merchant and jewellery designer, and a jewellery company has been detected by the Punjab National Bank at its Mumbai branch. The jewellery company acquired fraudulent letters of undertaking to secure overseas credit from other Indian banks. The disclosure of the embezzlement led to the share price tanking 9.8 per cent at the Bombay Stock Exchange. With the sharp fall, investors lost Rs 3,844 crore of wealth on single day. Meanwhile, the bank has suspended 10 officials and referred the matter to the CBI.

The bank has written letters to all major lenders informing them of the fraud. Banks, which have lent on the basis of the Letter of Understanding (LoUs)  issued by PNB, have an exposure close to Rs 11,000 crore.  LoUs are like a bank guarantee that undertake to pay lenders if borrowers default. Bankers says dozens of lenders have provided loans against the LoUs issued by PNB. Initial investigations suggest that Allahabad Bank, having the largest exposure, Axis Bank and Union Bank had funded close to Rs 7,000 crore on the strength of the LoUs. Foreign bank branches too are under investigation. The quantum of transactions is around USD 1,771.69 million.

“The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branch in Mumbai for the benefit of a few select account holders with their apparent connivance. Based on these transactions other banks appear to have advanced money to these customers abroad,” the PNB said in its BSE filing.

The bank had lodged a complaint with the CBI on January 31 naming billionaire diamond merchant Nirav Modi and a few others in a Rs 280-crore fraud. On February 5, the CBI had booked Nirav, his wife Ami Modi, his brother Nishal Modi and his uncle Mehul Choksi, MD of Gitanjali Gems, a listed company. The Modis and Choksi are partners in three businesses — Diamonds R US, Solar Exports and Stellar Diamonds. Two PNB officials, Gokulnath Shetty and Manoj Kharat, were also named. In a matter of a few days, the scale of the fraud grew from Rs 280 crore to over Rs 11,300 crore.

The fraud is worth almost eight times the bank’s 2016-17 profit of Rs 1,324 crore and nearly a third of its market cap on Wednesday’s closing price. The fraudulent transaction amount is close to one-third of its total market capitalisation of Rs 36,000 crore, or 2.55 percent of total loan book of Rs 4.5 lakh crore (as of December 2017).

The irregularities started sometime in 2011 but went undetected until a few weeks ago. People in the PNB said the fraud came to light after a bank executive, named by CBI, retired last year ending the unsanctioned rollover of letters of undertaking, based on which the companies were raising funds overseas.


  1. The sum involved in the alleged fraud in PNB , Mumbai going by the news is whopping one. The news can be said to be covered by the alert prediction of this Vedic astrology writer in article – “ Astrologically speaking , some highlights for India in coming year 2018” – published last year at , simultaneously at on 19 October , 2017. Just reproducing the text in the related prediction of the said article :-“ (1) Mid-March to 31 May 2018. ………….Chunk of industries may have tough time while looking for vitality. Those involved in decision making or governance of big enterprises or big organizations or think-tanks in the Govt , could be prone to errors or fault-lines or controversies giving rise to revision or amendment. … Some agreements with countries having economic or trading or commercial angle could pose issues causing concern and impeding economic growth”. Here , ‘giving rise to revision or amendment’ obviously means reform or necessary remedial measures.

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