The saga continues
The ambit of Punjab National Bank (PNB) scam involving Nirav Modi and his uncle Mehul Choksi is growing by the day. The Income Tax department on Saturday claimed that the real extent of the fraud can be in the range of over $3 billion (Rs 19,317 crore) as other banks are yet to audit their transactions with Nirav Modi, Mehul Choksi and their firms. So far, PNB has been non-committal about honouring its guarantees, fraudulently generated by its officials, to other banks for transactions made by Nirav Modi and his associates. The Indian Banks' Association has decided to take up the matter with the Reserve Bank of India (RBI). UCO Bank on Saturday said that it has an exposure of $412 million (Rs 2,652 crore) to PNB by way of fraudulent transactions carried out by Nirav Modi and his associates. The CBI has arrested two PNB officials and an accountant who is one of the authorised signatories to access bank accounts on behalf of Nirav Modi and his companies. The prime accused in the scam involving Rs 11,300 crore and counting, Nirav Modi, is said to be holed up in a luxury hotel suite in New York. The probing agencies have conducted raids and attached 22 properties and 105 accounts of Nirav Modi, Mehul Choksi, and their firms. In the nine accounts belonging to Choksi that were attacked by Income-Tax department, the probing agencies have found that money was withdrawn in full from these accounts. In another development, the Central Vigilance Commission, has summoned top officials from the PNB and the Finance Ministry to explain how the fraud went unnoticed for such a long period of time. The Chief Economic Advisor to the government, Arvind Subramaniam, has said that it is high time the government allowed some degree of privatisation in the public sector banks.
With every passing day, the investigating agencies and banks are stumbling upon new disclosures. The full scale of the fraud, dubbed as the Indian banking industry's biggest fraud, is yet to become clear. The politics has begun heating up on the issue with opposition slamming the government and accusing it of helping Nirav Modi and his associates flee from the country. The ruling BJP has hit back, stating that the fraud began and flourished when the Congress-led UPA was in power at the Centre. The BJP has also accused Congress spokesperson Abhishek Manu Singhvi of having direct links with Nirav Modi's businesses. BJP has accused that the wife and the son of Abhishek Manu Singhvi were directors of a company which has rented out a commercial property in the Mumbai' Kamla Mills Compound in Parel neighbourhood. The political slugfest on the matter is likely to continue at least for some time as the opposition has found a new issue to attack the Centre and the Centre blames the main opposition Congress of looking away when the fraud began in 2011 under the Congress-led UPA government. There are as many as eight Assembly elections in 2018 and the latest and biggest banking fraud is surely going to be talked about during the election campaign.
Apart from being a poll issue, the fraud committed by Nirav Modi and his associates is simply so big and bizarre that it's going to keep the probing agencies occupied for a long time besides spelling serious troubles for some of the leading public sector banks. As the size of the fraud is estimated to be around $3 billion or more, the exposure of different banks to PNB's guarantees against credits given to Nirav Modi's is likely to be on the higher side. PNB's response to whether it will repay the loans given to Nirav Modi's companies against the guarantee given by PNB is vague and non-committal. As UCO bank has reported its exposure to such dubious transactions at Rs 2,652 crore, other banks too are expected to report similar exposures to PNB in the coming weeks. If PNB refuses to honour its guarantees handed out in hundreds over the years to Nirav Modi and his associates, the entire banking industry will plunge into a crisis as to how to settle the huge amounts of money given as credit to Nirav Modi and his associates. The Finance Ministry and RBI are expected to ensure that the banking industry as a whole is spared of any negative fallout from the Nirav Modi saga. And, if PNB is made to cough up money against its guarantees given to Nirav Modi and his associates, the bank will have to stand ready to pay up nearly $3 billion or Rs 19, 317 crore to different banks. Whether PNB can survive after provisioning this sum of money is a big question.