PNB-Nirav Modi scam, the story so far

PNB fraud: Loans recalled from Nirav Modi, Mehul Choksi firms

Security guards stand inside a Nirav Modi showroom during a search by the Enforcement Directorate in New Delhi on February 15, 2018.   | Photo Credit: Reuters

Mumbai: Banks went into a huddle after the ₹11,500-crore fraud was detected in one of the branches of Punjab National Bank, with most lenders deciding to recall loans from the companies of the accused Nirav Modi and Mehul Choksi. While the total exposure of the banking system to these companies could not be ascertained, the PNB alone has an exposure of ₹1,700 crore.

According to bankers, most of these accounts are in the Special Mention Account of second category (SMA-2), which means the repayment was overdue for more than 60 days but less than 90 days. A loan becomes sub-standard — the first level of non-performing asset — if it is overdue for more than 90 days.

Some officials of a branch in Mumbai of the PNB had issued unauthorised Letter of Undertaking (LoUs) in favour of three companies for availing buyers’ credit. The employees misused the SWIFT network to transmit messages to other banks bypassing the core banking system (CBS). In a notification to the exchanges, the PNB said the fraud amounts to ₹11,500 crore.

“We have initiated the process for recovery. Enforcement directorate is also seizing the current assets. We are trying to protect the interest of all the stakeholders,” PNB MD & CEO Sunil Mehta said at a news conference.

One of the firms involved, Gitanjali Gems, had reported ₹34.32 crore for the quarter ended September 2017 as compared to ₹16.61 crore during the same period of the previous year. For the financial year 2016-17, Gitanjali’s net profit was ₹39.72 crore while revenue was close to ₹10,500 crore.

Nirav Modi’s firm Firestar Diamond was planning an initial public offering to raise about ₹1,000 crore for which it had received no-objection certificate from banks. However, now banks have recalled loans from this account too. Firestar is the sole distributor in India for Argyle pink diamonds, among the world’s most sought-after gems. The firm has three manufacturing facilities: Surat, Mumbai and the Armenian capital Yerevan.

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Printable version | Jan 27, 2022 7:51:40 PM |

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