Nirav Modi fraud case: RBI denies directing PNB over honouring LoU to other banks, says will take supervisory action

In the wake of the alleged Rs 11,400 crore fraud allegedly involving diamond merchant Nirav Modi, the Reserve Bank of India (RBI) has denied media reports that it had directed PNB to meet its commitments under the letters of undertaking (LoUs) to other banks.

In a statement, the RBI said that the alleged fraud was a "case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls."

"RBI has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action," it said.

State-owned PNB detected a scam where Nirav Modi allegedly acquired fraudulent LoUs from a branch in Mumbai to secure overseas credit from other Indian lenders. LoUs are an assurance given by one one party to another stating that it will fulfill the obligation that had been previously agreed on.

In its complaint, the public sector bank alleged that 293 LoUs worth Rs 11,400 crore were fraudulently issued to the companies of Nirav Modi and his uncle Mehul Choksi from one of its branches in Mumbai.

On Thursday, PTI quoted officials as saying that the RBI would be approaching its counterpart Hong Kong Monetary Authority (HKMA) to gather more details in the PNB matter as it was found that credit was availed from various bank branches in Hong Kong.

Meanwhile, the CBI registered a fresh FIR on Friday against Choksi, also the promoter of Gitanjali Group, in connection with the alleged fraud.

The new FIR pertains to 143 LOUs worth over Rs 4,886 crore fraudulently issued to three companies of Choksi — Gitanjali Gems, Nakshatra and Gili — during the period 2017-18, they said.

The agency had earlier registered a separate case involving Rs 280-crore fraud, which has now been expanded to cover LoUs worth Rs 6,498 crore issued to accused companies of Nirav Modi and Choksy.

Representational image. AFP

Representational image. AFP

Expanding the ambit of the first FIR registered on 31 January against the diamond merchant and Choksi, the agency has 150 LoUs worth Rs 6,498 crore issued by the bank.

The remaining 143 LoUs worth Rs 4,886 crore will be part of probe under the new FIR registered on Friday.

The CBI alleged that the accused officials issued fraudulent and unauthorised LoUs in favour of foreign branches of different India-based banks. The accused officials allegedly omitted entries of LoUs in the core banking system of the bank issued on behalf of the accused companies to avoid detection.

It is alleged that they used SWIFT — a global messaging service to move money internationally — and did not make any entries in core banking system, used to process daily transactions, to avoid any scrutiny.

According to the RBI guidelines, LoUs for gems should not be valid for more than 90 days.

CBI also approached the Interpol with a request for issuing 'diffusion notice' which was aimed at locating an individual.

Forty-six-year old Nirav Modi, who holds an Indian passport, left the country on 1 January, while his brother Nishal, a Belgian citizen, departed from the country on same day. Modi's wife Ami, a US citizen, left on 6 January and Choksi left the country on 4 January.

With inputs from PTI


Updated Date: Feb 16, 2018 22:00 PM

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