Punjab National Bank Fraud: All You Need to Know

PNB is at the centre of a $1.8 billion fraud – one of the largest to be detected across the Indian banking sector.

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The Punjab National Bank on Wednesday morning reported that Nirav Modi, an internationally-acclaimed diamond merchant whose clientele includes the likes of Priyanka Chopra and Kate Winslet, had carried out “fraudulent transactions” worth over Rs 11,000 crore by acquiring fake bank guarantees and showing it to other banks in order to extract more money.

The Enforcement Directorate, following the two FIRs filed by the Punjab National Bank, one in January and the other on Wednesday, has reportedly registered a money laundering case against Modi in connection with the fraud.

For the uninitiated, a ‘bank guarantee’ is the promise a bank or any other lending institution makes on the premise that if a particular borrower defaults on a loan, the bank will cover the loss.

According to what has been disclosed by the CBI, on the basis of the two FIRs filed by the Punjab National Bank, Modi had been using ‘fake bank guarantees’ as proof to other banks to extract money from them.

In fact, while the Punjab National Bank’s loss of over Rs 11,000 crore is what is making the headlines currently, there are several other banks that have and will probably be affected due to this scam as well. 

Modi’s execution of a scam this big in magnitude is reflective in many ways of the Securities Scam of 1991-92, where Harshad Mehta, a well-known stock broker had allegedly manipulated the stock market in 1992, by using fraudulent means to draw out funds from the banks and then put them into the stock market, in turn boosting the market to an extent and pushing Sensex up by over 4,500 points, reported the Economic Times.

Back then, Mehta had been arrested by investigation agencies and charged with over 70 criminal cases (mostly relating to bribery, cheating, forgery, criminal conspiracy and falsification of accounts) and over 600 civil action suits, the report adds.

In terms of this scam, it was reportedly being carried out for a period of 10 years. However, it was only in January of this year that the Punjab National Bank noticed these fraudulent transactions and alerted the CBI.

Ten employees of the Punjab National Bank, including the bank manager, have reportedly been suspended. 

According to the CBI, there is a possibility of them getting arrested as well.

Along with Modi, charges against his partner Mehul Choksi of Gitanjali Group has surfaced.

When the scam came to the attention of the bank, a huge income tax patch was placed on all branches associated with Modi’s three companies: Diamonds R Us, Stellar Diamonds and Solar Exports.

Despite the vigilance of the banking industry and the many measures incorporated by the government to protect them against scams of this kind, instances such as these are far too common.

While this can easily be considered one of the largest scams of the Indian banking sector in recent times, details regarding the involvement of more persons and the transactions in relation with the scam are expected within the next couple of days.

Video Translation: Hera Khan

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