Punjab National Bank has agreed to honour the Letters of Undertaking (LoUs) generated by its employees without authorisation, in a move that will put an end to squabbling between state-owned lenders over losses bore from the Nirav Modi fraud. The bank has agreed to honour half the fraudulent LoUs that amount up to £650 million, by March 31, and the remaining when they fall due. “This measure will ensure that India's banking system at large has the least possible disruption owing to the unfortunate fraud and banking operations will continue to function smoothly,” PNB said in a statement.
Banks whose overseas branches were depended on the fraudulent LoUs to lend to offshore companies that Nirav Modi and Mehul Choksi dealt with, were squabbling with PNB to get lender acknowledge liability. The bank had initially refrained on the grounds that the bank had not sanctioned any credit limits and that there had been lapses on the part of the offshore banks in lending against the LoUs. The move will now ensure that the loss on account of the Nirav Modi/Mehul Choksi fraud is localised with one public sector bank. While PNB had not lent against the LoUs to Modi/Choksi group companies, it can still pursue recovery from them.
In the first lot, PNB acknowledged 352 LoUs worth £650 million to seven banks. While other banks will not have to make provisions in respect of loans against LoU, a consortium of 31 lenders will need to make provisions on loans of close to £700 million made to Modi and Choksi group companies.
PNB has said it would complete integration of its SWIFT system with the bank's core banking system (CBS) ahead of the April 30 deadline stipulated by the Reserve Bank of India for all banks. This is possible because the bank has upgraded its CBS to Finacle 10 across approximately 7,000 PNB branches.
Meanhwhile, the Enforcement Directorate (ED) has arrested Firestar Group Vice President Shyam Sunder Wadhwa, a confidant of Nirav Modi. An official informed that he was arrested in Mumbai last week after questioning. This is the first arrest by the agency in the case. Sources said Wadhwa was accused of conducting fraudulent transactions with Firestar International and Firestar Diamond International owned by Nirav Modi, who along with his group companies- Diamond R US, Stellar Diamond and Solar Exports and others have been implicated in the £1.35 billion scam which was admitted by the PNB in February.
