Here's All You Need To Know About The Stunning Rs 11,400 Crore Nirav Modi-PNB Alleged Bank Scam

General News

Who is Nirav Modi? What is PNB? What is the scam? How did the scam take place? What have the scams consequences been? Where is Nirav Modi? Who's saying what?

Written By Ankit Prasad | Mumbai | Updated On:

Here's all you need to know about the titanic Nirav Modi-PNB bank scam, quite possibly the biggest of its kind in the history of India

Who is Nirav Modi: 

Nirav Modi is a 47-year-old Indian-born Belgium-raised third generation diamantaire or gem-quality diamond maker-expert. He joined Gitanjali Gems Ltd., the family business of his uncle, at the age of 19 after dropping out of the famed Wharton School of Business in the US' Pennsylvania. His rise to a diamond magnate took place almost entirely in the last decade. Following a number of his creations making waves at global auctions, he appeared for the first time on Forbes' list of billionaires in 2014.

In the 2017 list, he's ranked as the 85th richest man in India with an estimated net worth of $1.73 billion. (an amount suspiciously close to the size of the scam!)

His eponymous brand describes itself (him) as follows:

"Built brilliantly around a man, his metier, his art and extraordinary mastery of diamonds -- and above all, his passionate devotion to igniting femininity."

What is PNB:

Established in 1894 and headquartered in New Delhi, Punjab National Bank is the second-largest public sector bank (PSB), after only the State Bank of India.

What the scam is: 

On January 31, the CBI registered an FIR against Nirav Modi, his wife Ami Modi, uncle (and Gitanjali Gems Ltd's MD) Mehul Choksi, Gokulnath Shetty -- a now-retired PNB deputy manager, and others, based on a complaint by a PNB officer named Avneesh Nepalia. The complaint alleged that the Punjab National Bank had been defrauded to the tune of Rs 280 crores.

PNB subsequently initiated a probe and said in a regulatory filing on Thursday that it had discovered unauthorised transactions totalling Rs. 11,400 crore.

How the scam took place:

Gokulnath Shetty, a former PNB deputy manager, along with one other PNB employee, allegedly used his access to the SWIFT overseas transaction messaging system to authenticate sanction-less LoUs (Letters of Undertaking), using which Nirav Modi was able to obtain credit from overseas branches of several Indian banks. 

The transactions didn't come to light in PNB's system because the LoUs weren't reconciled between SWIFT and the Bank's core banking platform, Infosys' Finacle.

What is LoU and how were they used: 

A Letter of Undertaking is essentially a guarantee given from one bank to another, generally backed by security. In this case, the LoU was used to obtain 'secured' credit from a host of Indian banks' overseas branches.

Apart from PNB, the following borrowings were made:

  • Union Bank: Rs. 2,300 crore
  • Allahabad Bank: Rs 2,000 crore
  • SBI: Rs 960 crore

Consequences of the scam:

  • The Punjab National Bank has suspended ten officials. 
  • The Enforcement Directorate has raided Nirav Modi's premises at multiple locations and subsequently seized property (gems, gold, jewellery, cash, etc.) worth Rs 5,100 crore.
  • The Punjab National Bank's share price has gone into free-fall and the bank has lost Rs 8,000 crore in market cap in the space of two days, a figure that's over six times larger than its full-year profit.

Where is Nirav Modi:

Apart from the fact that he departed the country on January 31, 2018, Nirav Modi's precise whereabouts are currently unknown. He is understood to have held an emergency meeting with his aides and representatives in Hong Kong following the investigation's initiation.

Republic TV has also received information that he may have applied for Belgian citizenship, though that is said to have happened before the alleged scam coming to light. The application is yet to be completed, sources added.

The Enforcement Directorate has issued an order to the Ministry of External Affairs to revoke the passports of Nirav Modi, Ami Modi and Mehul Choksi.

Who is saying what:

The Congress and the BJP have each made accusations and counter-accusations regarding the scam.

The Congress' attack is based on Nirav Modi being photographed with Prime Minister Narendra Modi at the World Economic Forum in Davos (and the fact that they share surnames, as does Lalit Modi), and that he has left the country, much like Vijay Mallya.

The BJP's counter is based on the fact that the illegal dealings began under the UPA's tenure, in 2011, as per PNB. 

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