One of India’s biggest banks has accused jeweller Nirav Modi — who’s dressed stars including Kate Winslet and Priyanka Chopra — of involvement in a multi-billion dollar fraud that could extend to other lenders, said people familiar with the matter.
Punjab National Bank filed a complaint with the Central Bureau of Investigation, the federal investigation agency, alleging that Modi and companies linked to him fraudulently acquired PNB guarantees worth 100 billion rupees ($1.6 billion) that they later used to obtain loans from abroad, the people said, asking not to be identified as the details aren’t public. The bank alleged that Modi worked with some junior PNB officials to get the letters, the people said.
PNB had already filed a case against Modi two weeks ago — the details of which have been made public — alleging a 2.8 billion rupee fraud and said it would check if the impact was deeper. It told the exchanges on Wednesday — without naming anyone — that a $1.8 billion fraud was detected at a single branch in India’s financial hub.
Officials detected some fraudulent and unauthorised transactions in one of its branches in Mumbai “for the benefit of a few select account holders with their apparent connivance,” PNB said in the statement.
“Based on these transactions other banks appear to have advanced money to these customers abroad.”
‘LOOK OUT NOTICE’
Press Trust of India and ET Now television channel had earlier reported about the new 100 billion rupee case against Modi.
Rajiv Kumar, India’s top banking bureaucrat, told BloombergQuint that the case is an isolated one that dates back to 2011. About 10 PNB employees have been suspended pending a CBI investigation, he said. He didn’t name any of the accused.
An email to the banking regulator was unanswered. An external spokesman for Modi didn’t reply to an email seeking comment sent on Wednesday. An email and phone call made to Modi’s office was unanswered.
Modi himself hasn’t publicly commented on the previous case dated Jan. 29, when PNB exhorted investigators to issue a “look out notice” so that Modi and his alleged accomplices “may not leave the country to avoid process of law against them.” Authorities filed complaints against Diamond R US, Solar Exports and Stellar Diamonds, saying Modi and his family are partners in these firms.
Modi grew up in Antwerp, the son and grandson of diamantaires, according to his website. Apart from India, he has boutiques in cities including
New York, London, Beijing, Hong Kong and Singapore. His company Firestar International Ltd. plans a 10 billion rupee initial public offering, Moneycontrol.com had reported in September citing unnamed sources.Firestar isn’t linked to to the complaints made in January, the company said in a Feb. 5 email sent through an external spokeswoman. This external spokeswoman didn’t immediately comment when asked about the latest allegations.
According to details of that older complaint, PNB alleged that Modi, his wife and brother, and “other unknown persons” had worked with some named PNB officials at a Mumbai branch to obtain letters of understanding from PNB in 2010 without following due procedure.
In order to avoid detection, they hadn’t made transaction entries into
PNB’s systems but had transmitted instructions to the Hong Kong branches of Allahabad Bank and Axis Bank
Ltd. through the SWIFT global pay-ment system.
Modi had claimed to need the cash to pay his import bills but the 2.8 billion rupees raised weren’t used for this purpose, PNB had alleged, without elaborating. Emails to Axis and Allahabad banks were unanswered. There are no complaints against Axis and Allahabad Bank.
The case came to light when Modi’s companies sought a fresh loan last month. By then the PNB official they had allegedly been working with had retired, according to PNB’s complaint. Since there was no sanctioned limit in the name of Modi’s companies, PNB said it asked for 100 percent cash margin to issue the letters of understanding. When Modi’s companies insisted that they had used the facility before, PNB said it started digging.
Investigative agencies have been informed about the latest fraud transactions, PNB said in the filing on Wednesday. The bank didn’t elaborate on what impact the fraud may have on its finances and it didn’t name the other lenders which could be hurt.
“So far there is no clarity on impact on the lender’s bottom line from this,” said Asutosh Kumar Mishra, a Mumbai-based banking analyst at Reliance Securities Ltd. “There is no clarity on whether these transactions are reversed, whether the bank is holding collateral that could back part of these transactions or whether enforcement authorities will be able to recover this amount.”
The allegedly fraudulent transactions are the equivalent of eight times the lender’s 2017 net income of about 13.2 billion rupees ($206 million), exchange filings show. PNB shares fell 9.8 percent in Mumbai on Wednesday, the steepest drop since August 2015.
The case poses further questions about the health of India’s banks, which are already grappling with one of the worst bad-loan ratios among big economies.