The firms were maintaining only current accounts with the branches and did not enjoy any fund or non-fund based limits.
PNB, India’s second-largest state-owned lender after SBI, is now valued at Rs 311 billion
The slide in the bank’s shares has hurt LIC, which holds 14% stake
“Besides conducting the probe, the RBI will have to investigate the loophole and ensure that the risk management systems are made more robust,” said Deepak Bhawnani, chief executive officer (CEO) of Alea Consulting, a global risk mitigation and investigative consulting firm.
Official investigations will try to investigate the labyrinth of trades and seek out genuine beneficiaries. The process of understanding the money movement, and then to figure out who is liable and who has breached the law will take time.
The SWIFT system clearly works well; however, cooperation among various departments, authorities and banks
will be key to unravelling this issue, according to a former banker. Meanwhile, banks have begun to process the recall of loans extended to Nirav Modi’s units. Senior public sector bank executives said banks had agreed to recall all loans extended to entities owned by Nirav Modi in light of the alleged LoU fraud. The recall would also cover all standard loans extended to Modi entities, said a lender.
UCO Bank has direct exposure of around Rs 1 billion to Nirav Modi-owned firms, which it has recalled. United Bank of India, which has a direct exposure of about Rs 250 million, too, will recall the loan.
The next step in this process is that the company and its promoters come in for negotiations for settlement of all loans. If they present a proper repayment plan, it will be scrutinised for viability and to corroborate financial ability and timelines. But given the criminal nature of the case now, this aspect would become complex, bankers said.
PNB had detected a Rs 114 billion scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent LoUs from a PNB branch in Mumbai to secure overseas credit from other Indian lenders.
Meanwhile, other banks, too, have exposure to Nirav Modi’s entities. Allahabad Bank has an exposure of about Rs 40 billion, while that of Axis Bank is Rs 30 billion and Union Bank Rs 20 billion. State Bank of India, too, has some exposure.
UCO Bank, which has claims on PNB expects it to be settled this quarter. “We have written to PNB, and it has not refuted our claims. It is PNB’s responsibility to settle the claim. We expect recovery in this quarter itself and hence, no additional provision should be needed on account of this fraud,” said Charan Singh, executive director, UCO Bank.
(With inputs from agencies)