Three held in Punjab National Bank scandal, hit to lenders may exceed US$3b

NEW DELHI/MUMBAI: India’s federal police detained two employees of Punjab National Bank, the state-run lender that says it has been the victim of a US$1.77 billion (RM6.9 billion) fraud, in the first arrests in a fast-widening investigation into the country’s biggest-ever bank scam. Gokulnath Shetty and Manoj Kharat are suspected of steering fraudulent loans to companies linked to billionaire jeweller Nirav Modi and entities tied to jewellery retailer Gitanjali, which is led by Modi’s uncle, Mehul Choksi.
India’s Income Tax department warned in an internal note seen by Reuters that domestic banks could take a hit of more than US$3 billion (RM11.7 billion) from loans and corporate guarantees provided to Modi and Choksi.
The arrests, late on Friday, came two days after India’s second-largest state-run lender said it had been hit by massive fraud, sending its share price tumbling.
The accusations against the two relatively junior PNB officials were detailed in the lender’s disclosure, and also contained in a preliminary police report.
The Central Bureau of Investigation (CBI) also arrested a third person, Hemant Bhat, whom a source described as the “authorised signatory” of the companies tied to Nirav Modi.
All three appeared before a hot, packed courtroom in Mumbai on Saturday afternoon, where they were ordered to remain under police custody until March 3 to allow the CBI to continue its investigation. No charges have yet been laid.
“CBI must get fair chance to investigate this very serious offence, which has consequences for the country’s economy,” said judge S.R. Tamboli, as PNB employee Shetty shifted nervously and blinked frequently. The other two stood passively.
Family members of the accused present at the court defended them, saying they were innocent.
Kharat’s uncle told Reuters the PNB employee was “just following orders of superiors” and added “he wasn’t aware of what he is doing”.
Meanwhile, the tax department has estimated that Indian banks could take a hit of more than US$3 billion from the alleged fraud at Punjab National Bank.
As of March 2017, banks had extended loans and guarantees worth 176.32 billion rupees (RM10.74 billion) to companies tied to Modi and Choksi, the tax department said in a note seen by Reuters.
Since then, the loans and guarantees would have increased over the past year and the total “hit” to Indian banks “may well exceed” US$3 billion, according to an internal note prepared by the tax authority on its preliminary investigation into India’s biggest bank fraud case.