Nirav Modi, and the firms he controls had allegedly leveraged the loopholes in the banking system by seeking letters of undertaking (LoU) and raising credit from foreign banks to pay its merchants. The scam which became public earlier this month, could amount Rs. 12,700 crore, PNB said. Initially PNB had estimated the fraud to be around Rs. 11,400 crore - already one of the biggest frauds in the country's banking system.
Modi, founder of Firestar Diamond, and his uncle Mehul Choksi, who owns Gitanjali Gems Ltd, are suspected of colluding with PNB employees in the fraud.
The scam which has been allegedly going on for the past seven years, involved Nirav Modi and his three firms-Diamond R Us, Solar Exports and Stellar Diamonds. The companies were allegedly procuring the LoUs from the PNB's Brady Road branch. These bank guarantees allegedly helped Modi raise the short-term loans from foreign branches of Indian banks to pay to its suppliers of raw material (rough stones).
Meanwhile since February 14, when the fraud was first disclosed by the bank, PNB shares have lost nearly 40 per cent of their value.
PNB earlier said that it was putting in place "better checks and balances", as investigators widened the probe into the country's biggest-ever bank scam. Meanwhile, the Reserve Bank of India, in a statement late on Friday, said it "has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action".
