Nirav Modi fraud: PNB to honour bonafide LoU; increase its focus on CASA

The logo of Punjab National Bank (PNB) is seen on a branch office window in New Delhi, India | Photo: Reuters

Punjab National Bank (PNB)  on Friday said it will honour all "bonafide" Letter of Undertakings (LoUs), an instrument which was used by billionaire diamantaire Nirav Modi to defraud the bank of Rs 129.68 billion (Rs 12,968 crore).

The statement was made by top management of the bank at the Extraordinary General Meeting (EGM) which was primarily convened to clear proposal for the capital infusion through issuance preferential shares to the government.

Clarifying on questions of shareholders on the ongoing bank fraud case, PNB reassured its shareholders, customers, partners and employees on the bank's capability and capacity to come out of this situation.

The bank has outlined a multi-pronged agenda to tighten checks and balances in the system and the top management said that they will honour all bonafide LoUs, sources said.

Shareholders of the bank in the EGM approved the issuance of up to 33.49 crore shares of face value of Rs 2 each fully paid at a premium of Rs 161.38 per share amounting to Rs 5,473 crore to the Government of India (GoI) on preferential basis, PNB said in a filing to stock exchanges.

The allotment of these preference shares is likely to increase the government's stake in PNB from 57 per cent to 62.25 per cent.

ALSO READ: PNB fraud: There can't be parallel inquiry by courts, Centre tells SC

With regard to strengthening internal control mechanisms, sources said frequency of internal audits will go up and as and when required external auditors will also be utilized.

Besides, the bank has decided to increase its focus on Current and Savings Account (CASA) targeting small depositors. The bank is already generating more than 40 per cent of its resources through CASA.

ALSO READ: Blame game over PNB fraud would take us nowhere, says Venkaiah Naidu

Billionaire jeweller designer Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated the PNB of Rs 12,968 crore through fraudulent Letters of Undertaking (LoUs).

A Mumbai branch of Punjab National Bank had issued as many as 1,213 letters of undertaking (LoUs) fraudulently for the group of companies belonging to Nirav Modi since March 2011.

Different investigating agencies, including CBI and Enforcement Directorate, are probing the fraud, dubbed as the biggest banking scam in the country.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel