PNB claims ability to recover from $1.77bn fraud

Nirav Modi

MUMBAI/NEW DELHI: Indian investigators yesterday raided the premises of a billionaire jeweler accused of defrauding one of the country’s biggest banks. Enforcement Directorate (ED) officers searched the Mumbai offices of Nirav Modi after he was accused of cheating state-owned Punjab National Bank (PNB) of 2.8 billion rupees ($43.8 million).

Footage broadcast on Indian television news channels showed officers entering one of Modi’s jewelry showrooms in the south of India’s financial capital. The Press Trust of India (PTI) news agency reported that investigators searched around half a dozen locations in Mumbai, including Modi’s home, as well as stores in New Delhi and Surat. A spokesman for the ED refused to comment when contacted by AFP. Modi is one of India’s richest men.

He is worth $1.73 billion according to Forbes, placing him 85th on India’s rich list. The 47-year-old is the founder of jewelry giant Firestar Diamond. His high-end Nirav Modi brand has stores in several of the world’s major cities. Yesterday’s raids came a day after the ED registered a money laundering case against Modi and a few others, including members of his family and a business associate. It followed PNB’s complaint last month to India’s Central Bureau of Investigation (CBI) that it had been defrauded of 2.8 billion rupees.

The bank, India’s second-largest stateowned lender, announced on Wednesday that it had also detected fraud of almost $1.8 billion at a single branch in Mumbai, sending its shares plummeting. It made fresh allegations against Modi to the CBI, according to PTI. The news agency, citing officials, reported yesterday that Modi had left India on January 1, before the bank detected either of the two fraud cases. Modi has not commented on the allegations. Firestar Diamond has previously said the earlier case was not connected to the company.

In January, he was photographed alongside Indian Prime Minister Narendra Modi at the World Economic Forum in Davos.

The two are not related. The trouble comes as India’s government is trying to reduce the crippling debts of the country’s embattled lenders, including PNB. It recently announced a $32-billion recapitalization plan for state-owned banks to help them clean up their books. Punjab National Bank, India’s second-largest state-run lender, said yesterday it has the capability and capacity to recover after uncovering a staggering $1.77 billion fraud at one of its branches that went undetected for years.

The loan fraud - the largest ever in Indian history - has sent PNB’s shares tumbling about 20 percent this week. “This cancer that’s been going on since 2011, we have brought it out and we are resolving it,” PNB’s Chief Executive Sunil Mehta said at a press briefing, adding that the bank would honor all its commitments. “If the entire onus is on us, we will take responsibility,” Mehta said, adding the bank has taken action to book culprits and protect its financial interests. Modi, who has not spoken about the case so far, could not be reached for comment. His flagship company Firestar Diamond has said it had no involvement in the case.

Indian bank shares slid further yesterday a day after being hit by news of the bank fraud. PNB, which has assets of $120 billion, disclosed the fraud in a regulatory filing on Wednesday, saying it had referred the matter to law enforcement agencies. Given the scale of the fraud, the fallout from the case could spread and give rise to fresh questions about lending procedures at Indian lenders, particularly public sector banks, mired in soured debt.

Ongoing

PNB first notified India’s Central Bureau of Investigation (CBI) of its discovery in late January, and on Monday it issued a “caution notice” to warn other lenders about the suspected fraud. PNB has said that two junior officials at one of its branches in Mumbai had illegally issued “letters of undertaking” to get overseas branches of other lenders to extend credit to “a few select account holders,” most notably companies with ties to Modi, who runs a global diamond jewellery business. Indian federal agents last week said they were investigating the jeweler and others over accusations that they defrauded PNB of $44 million. A CBI official said told Reuters on condition of anonymity that the cases were related. —Agencies