Fraud at PNB may cost banking sector much more than Rs 11,400cr

The final bill of the fraud at Punjab National Bank to the Indian banking system could well be in the vicinity of Rs 21,000 crore, if one were to account for the secured loans to the Nirav Modi group and the Gitanjali group of companies. With investigative agencies cracking down on both groups and attaching their assets, many other banks, in addition to PNB, may struggle to recover the money loaned to these groups.

Last week, PNB informed stock exchanges about the Rs 11,400 crore worth of unauthorised transactions at its Brady House branch based on forged letters of undertaking (LoUs). The bank alleged that two of its officials had issued the forged LoUs, which allowed the Gitanjali group and Nirav Modi group of companies to borrow money from overseas banks, with PNB as the guarantor of the loans.

Besides this, a consortium of 31 banks led by ICICI Bank has loaned close to Rs 5,200 crore to Mehul Chokshi's Gitanjali Group. Nirav Modi firms Stellar Diamond and Solar Exports and Diamonds have together borrowed close to Rs 4,000 crore from banks.

The Enforcement Directorate (ED) is hoping to recover Rs 3,000-4,000 crore from the real estate assets seized from Nirav Modi and Mehul Choksi, sources told Moneycontrol. This is in addition to the diamonds and precious stones seized by ED from the two groups, which is valued at Rs 5,816 crore. The ED’s estimate of the value of precious stones seized from the two groups is based on the stock value, which is always higher than the market value of the stones.

A source in the investigation agency told Moneycontrol: “In the past too, we have seen that the actual value of diamonds were much lesser than its stock value. We should at least discount fifty percent of the stock value. Also, the real estate properties of Mehul Choksi and Nirav Modi are together not worth more than Rs 4,000 crore.”