Indian banks may take more than US$3 billion hit from PNB fraud: Tax dept

PNB's disclosure on Wednesday that it had suffered massive fraud has sparked a widening probe involving various Indian authorities.
PNB's disclosure on Wednesday that it had suffered massive fraud has sparked a widening probe involving various Indian authorities.PHOTO: AFP

NEW DELHI (REUTERS) - Indian banks could take a hit of at least US$2.7 billion from loans and corporate guarantees provided to Punjab National Bank (PNB) in the biggest-ever bank scam to hit India, the tax department said on Saturday (Feb 17).

As of March 2017, banks had extended loans and guarantees worth 176.32 billion rupees (US$2.74 billion) to companies tied to billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the tax department said in a note seen by Reuters. 

But the total hit to Indian banks “may well exceed” that amount the department said in its note. 

The revelation came as India's federal police arrested two employees at PNB believed to be at the centre of the staggering fraud, a police source said on Saturday.

The arrests late on Friday come amid an intensifying probe involving various authorities after India’s second-largest state-run lender said on Wednesday it had been hit by massive fraud amounting to US$1.77 billion.  

 

The two bank employees who were arrested, Gokulnath Shetty and Manoj Kharat, are suspected of steering fraudulent loans to companies linked to billionaire jeweller Nirav Modi and to entities tied to jewellery retailer Gitanjali, which is led by Modi’s uncle, Mehul Choksi.

The accusations against the two relatively junior officials at PNB were detailed in the lender’s disclosure, and were also contained in a preliminary police report.  Police also arrested a third person, Hemant Bhat, whom the source described as the “authorised signatory” of the companies tied to Nirav Modi. 

An Indian court on Saturday ordered the three to remain under police custody until March 3, saying the authorities must get a fair chance to investigate the case, citing the potential consequences to the country’s economy. 

The whereabouts of Modi, whose high-end jewellery has been worn by Hollywood stars including Kate Winslet, is unknown.

TV Station NDTV on Friday reported he was at a suite in a hotel in New York, citing household staff who answered the door.  The scale of the fraud has sparked a slew of probes into the lender, as well as into Modi, his uncle Choksi and companies affiliated to both. 

 

India’s Income Tax Department has also extended a probe into Modi and his group companies, looking into possible tax evasion and suspected investment of illegal funds, a spokeswoman told Reuters on Saturday. 

The spokeswoman said 29 properties and 105 bank accounts of Nirav Modi and his group companies had been seized. 

The Hindu newspaper reported on Saturday that the Central Vigilance Commission, which investigations corruption in the government, has summoned senior officials of the Reserve Bank of India and the Finance Ministry to assess how all internal checks and balances failed to detect the fraud.  PNB officials were also summoned, the report said, citing an official aware of the development.