Indian banks could be on the hook for more than $3 billion thanks to a massive fraud scheme revealed by Punjab National Bank last week.
According to news from Reuters, citing India’s tax department, banks in India may have to deal with the repercussions from fake loans and corporate guarantees that were given to diamond companies tied to Nirav Modi, the billionaire jeweler.
Since March 2017, banks were granting loans and guarantees valued at $2.74 billion to companies tied to Modi and his uncle Mehul Choksi, who operates a jewelry retailer. Ever since the loans were issued, the loans and guarantees have increased, with the total hit to banks potentially exceeding $3 billion.
India’s police have moved swiftly in the case, detaining Gokulnath Shetty and Manoj Kharat, two workers at Punjab National Bank who are accused of steering the loans to entities connected to Modi and Choksi. The tax department said in a letter seen by Reuters that the loans were recorded on Punjab National Bank’s internal software system rather than being transmitted through the SWIFT interbank messaging system as a way to avoid detection. The tax department noted Choksi’s Geetanjali Gems and other units led by him had dealings with 32 banks that offered the businesses loans, including Union Bank of India, Allahabad Bank and Axis Bank. Late last week, Union Bank of India, which is a state-run lender, said its financial hit from the fraud scheme totals around $300 million.
Reuters stated that loans to three of Modi’s companies, including Stellar Diamond, Solar Exports and Diamonds ‘R Us, amounted to 39.929 billion Indian rupees, while total capital of its partners equaled 4 billion Indian rupees. Federal police stated that both Modi and Choksi left India in the early part of January.