PNB fraud: ED expands probe; Assocham asks banks not to over-react

Even as the Enforcement Directorate has expanded its probe against Nirav Modi and Mehul Choksi to include loans taken by them from 16 other banks over the past few years, industry body Assocham today said that the episode should not halt the entire system of corporate lending as demoralisation would set in among public sector bank (PSB) employees.

Noting the reports about banks clamping down certain impractical rules and procedures for trade finance, affecting both importers and exporters in the wake of the alleged Rs 11,400 crore fraud on Punjab National Bank, Assocham said the letters of credit (LOC) or letters of undertaking (LOU) allegedly misused by the diamond traders are legitimate instruments in global trade.

The statement by the industry body said that the country can "ill-afford" such fraud induced credit slowdown at a time when credit growth is showing signs of recovery and the economy set to grow at a higher pace.

"While we may seek long-term solutions like privatisation of the banks, the need of this hour is to rally around honest bank officers and the honest business entities which have built trust on each other," Assocham Secretary General DS Rawat said in a statement.

"Let one or a few black sheep not derail our financial system, which is resilient enough to withstand this kind of shocks, though ideally such jolts are better avoided and averted through systemic reforms," he said, adding "letters of credit or letters of undertaking are an internationally accepted system of global trade."

"While we need to ensure safe and sound functioning of the system and not allow loopholes like those in the PNB system of money or guarantee transfer, let banks not over-react and hit the trade and industry."

ED expands probe 

The ED has reportedly expanded its probe against diamantaires Nirav Modi and Mehul Choksi to include loans taken by them from 16 other banks over the past few years, apart from the PNB. 

According to an Indian Express report, ED Director Karnal Singh has written to the banks for details of the loans given to the two, the present status of the loans, the collaterals offered, and the form and nature of the loans.

“We are at present seeking information from banks which have given bigger loans. We have learnt that these loans have been granted at collaterals which are just 12 per cent of the total value of the loans. We want to see on what basis these loans were granted and whether these are still recoverable. However, we have not asked any bank to file a complaint with us,” an ED official told the newspaper. 

Citing sources, the report said the CBI and ED probe into the alleged Rs 11,400-crore fraud perpetrated by Modi and Choksi on PNB indicates that more than two dozen banks may have been exposed to loans ranging between Rs 5,000 crore and Rs 10,000 crore.

Further, the report said that till March 31, 2017, Mehul Choksi and his companies Geetanjali Gems, Gili India and Nakshatra Brand owed close to Rs 3,000 crore in the form of 37 bank loans. 

Citing earlier report on February 16, the newspaper said Modi’s firms too have outstanding loans amounting to Rs 3,000 crore, to 17 banks — including Central Bank of India (Rs 194 crore), Dena Bank (Rs 153.25 crore), Vijaya Bank (Rs 150.15 crore), Bank of India (Rs 127 crore), Syndicate Bank (Rs 125 crore), Oriental Bank of Commerce (Rs 120 crore), Union Bank of India (Rs 110 crore), IDBI Bank and Allahabad Bank (Rs 100 crore each).

Sources reportedly said that a lot of these loan accounts are in the category of special mention account of second category, which means they are close to becoming NPAs (non-performing assets).

CBI questions PNB MD Sunil Mehta, ED KV Brahmaji Rao

Earlier on Saturday, the CBI had questioned Punjab National Bank (PNB) Managing Director-cum-CEO Sunil Mehta and Executive Director K.V. Brahmaji Rao in this connection. Both the bank officials were called at the Central Bureau of Investigation`s (CBI) Mumbai branch and were questioned for over eight hours. 

These two top officials were questioned first time even since the CBI filed the first FIR in the multi-crore scam on February 14 against Nirav Modi, his wife Ami, brother Nishal, uncle Mehul Choksi and his firms Diamond R US, Solar Exports and Stellar Diamond. 

CBI sources said the PNB MD and the Executive Director were questioned over several issues, including if they had any clue of the whole scam. 

Meanwhile, questioning of 12 arrested accused persons continued on Saturday, said a CBI official, adding all of them were were also confronted during examinations. 

Finance Minister Arun Jaitley on Satuday criticised regulators, as well as bank managements and auditors, for their failure to detect bank frauds saying "politicians are accountable but regulators are not".

Addresing the ET Global Business Summit, Jaitley said, "We must always remember that regulators have a very important function. They ultimately decide the rules of the game and they have to have a third eye kept perpetually open and turned towards the sector. But unfortunately, in the Indian system, we politicians are accountable, the regulators are not." 

(With Agency Inputs)