New Delhi: The $2 billion-plus Punjab National Bank (PNB) fraud has expanded by over Rs 942 crore, according to a document accessed by news agency Reuters. It may be noted that the Reserve Bank of India‘s (RBI) decision to barred lenders from issuing Letters of Undertaking – a form of credit guarantee – to traders. The fresh disclosure takes the amount of the biggest banking fraud in the country close to Rs 13,900 crore, adding more salt to PNB’s wound. It may be noted that other banks who also gave money to beleaguered diamantaires Nirav Modi and Mehul Choksi‘s group of companies are also feeling the heat.
As investigations continue in the case, the police told in a court filing on Tuesday that Choksi’s Gitanjali Group of companies allegedly defrauded PNB of Rs 7,080 crore as against the earlier estimated amount of Rs 6,138 crore.
Meanwhile, a report on The Economic Times indicated that PNB, which has to clear the pending debts of companies owned beleaguered diamantaires Nirav Modi and Mehul Choksi, agreed to honour claims of other banks subject to the Rs 12,700 crore fraud by March-end. However, the payments will have some clauses attached, according to two senior officials who spoke to the publication.
One of the officials said that a letter will be issued by PNB while clearing the dues. “While settling the dues, PNB will issue a letter to banks that they would be liable to make good the payment if the findings by the investigative authorities prove that there was mala fide intent on the part of peer banks,” one of the officials said. “Once this is acknowledged by peer banks, PNB will make payments.”
In view of the alleged scam, done through fraudulent issuance of Letter of Understanding (LoUs) by connivance of the bank’s staff, the Reserve Bank of India (RBI) on Tuesday discontinued issuance of LoUs by banks for trade credits for imports into India.
The central bank said the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for trade finance comes into force with immediate effect.
“It has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks with immediate effect,” RBI said in a circular today. Letters of credit and bank guarantees for trade credits will “continue to be issued subject to compliance with rules, the circular added.
The RBI notification further said that Letters of Credit and Bank Guarantees for trade credits for imports into India may continue to be issued subject to compliance with the provisions. The instruments are all forms of trade finance often used by importers to fund their overseas purchases.