India’s state-owned UCO Bank said it has exposure of $411.8 million in the nearly $2 billion bank fraud perpetrated against Punjab National Bank, a case linked to billionaire jeweler Nirav Modi.
UCO Bank’s Hong Kong branch granted loans against letters of credit issued by PNB, UCO Bank said in a filing with the Bombay Stock Exchange. Other banks, including State Bank of India and Union Bank of India, are also said to be at risk of loss.
In all, Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies allegedly involved in the fraud at
PNB, Reuters reported, citing the tax department.
In its complaint to the Central Bureau of Investigation, PNB alleged that the fraud was led by Modi, who’s dressed Hollywood actors including Kate Winslet and Bollywood actors such as Priyanka Chopra. Modi, 47, is No. 85 on Forbes’s 2017 list of India’s richest people.
Modi hasn’t spoken publicly about the allegations. He is in New York City, and the ministry of external affairs suspended his passport, The Times of India reported.
The CBI has arrested Gokulnath Shetty, a former deputy general manager at PNB, and Manoj Kharat, a so-called “single window operator” at the lender, CBI spokesman R.K. Gaur said. Hemant Bhat, an authorized signatory of the Nirav Modi Group of firms, has also been held, Gaur said. A special court in Mumbai remanded the three suspects to the CBI’s custody for 14 days, saying the case has “consequences for the economy of the nation,” the Press Trust of India reported.
Raids were being conducted across India by the Enforcement Directorate, and included the seizure of about 56.7 billion rupees ($883 million) in diamonds, gold, precious stones and jewelry, the Press Trust of India said in a separate report.
PNB told the National Stock Exchange and Bombay Stock Exchange that it has also filed complaints against Mehul Choksi’s Gitanjali Group of companies. PNB alleges that Modi and Choksi worked with Shetty, who was posted at a PNB branch in Mumbai from where the fraud originated.
The bank claims they used fake PNB guarantees worth $1.8 billion to obtain loans from the overseas branches of Indian banks, claiming to need the cash to import pearls, according to documents made public or seen by Bloomberg.
The fraud allegedly dates back to 2011, said Rajiv Kumar, India’s top bureaucrat for the bank sector. Between then and January 2017, Shetty issued several fake PNB letters of undertaking — without any collateral — for Modi, PNB said.
The bank claims they then bypassed the lender’s internal messaging system in order to avoid detection, and placed instructions via the Swift global payment system asking overseas branches of Indian banks to fork out the cash as loans, according to a document from PNB seen by Bloomberg.