The scandal surrounding India’s state-run Punjab National Bank (PNB) is getting bigger — in fact, a source says it could hit the $2 billion mark.
According to a source involved in the investigation and court documents reviewed by Reuters, authorities are still trying to recover all documents and loan guarantees issued fraudulently at the bank. Once the investigation is completed, the bank’s exposure could reach $2 billion.
Last month PNB announced that it had discovered $1.8 billion in fraudulent activity at one of its branches, making it the biggest banking scandal in the country’s history.
The scandal involves firms associated with diamond merchants Nirav Modi, the billionaire jeweler, and his uncle, Mehul Choksi, who heads jewelry retailer Gitanjali Gems. The allegations, which go as far back as 2010, involve the firms receiving fraudulent letters of undertaking (LoUs) from the Brady House branch, which allowed them to then borrow money from overseas banks.
The bank also alleged that Modi took advantage of the inexperience of junior banking personnel to receive the letters. So far, the police in India have arrested 13 people, seven from PNB and six from companies owned by Modi and Choksi.
Court filings revealed that the exposure to three companies controlled by Modi has been estimated at 64.98 billion rupees ($1 billion), while Choksi’s firms defrauded the bank of 61.38 billion rupees.
But India’s federal police, the Central Bureau of Investigation (CBI), has informed a Mumbai court that it expects the amount involving Modi’s companies to go up. The CBI also said PNB did not have all the documents related to the LoUs because the paperwork was returned to the borrower.
“Most of these documents are not yet recovered. The size of the fraud has now gone (up)…and the same is likely to go even higher,” the CBI said in the court filing.