Banks now fret over Rs 10,000 cr to Mehul Choksi's Gitanjali Group

A web of companies owned by diamond billionaire Nirav Modi and his maternal uncle Mehul Choksi (promoter of Gitanjali Group) could make Indian banks bleed more. With Modi, Choksi and other accused in the Punjab National Bank scam having left India, loans worth Rs 10,060 crore extended to their companies could provide fresh concerns for lenders.

Though it is yet to be ascertained whether the entire amount was lent by Indian banks, they definitely carry a substantial part of the load on their shoulders. This is in addition to the Rs 11,300 crore that was fraudulently siphoned off from the overseas account of PNB through letters of undertaking (LoUs). These are not loans but guarantees to the clients offered by PNB based on which six other Indian banks have disbursed money to the PNB Hong Kong branch account.

Gitanjali Gems, a listed company, said in its annual report of 2016-17 that it has bank loans of about Rs 6,874.97 crore.

Nirav Modi group in a private placement document said that the company has a debt of Rs 3,186 crore.

A consortium of 30 lenders, led by ICICI Bank, has an exposure of about Rs 6,800 crore to the Gitanjali Group, a banking source said. SBI said it has an exposure of Rs 350 crore to the Gitanjali group and IDBI Bank said it has Rs 400 crore loans to the company. ICICI Bank said though it is the leader of the consortium it does not have the highest exposure to the company, but it declined to disclose its exposure.

Both the exposures in Nirav Modi and Gitanjali Group will be over Rs 10,000 crore and many of the loans have been out of the overseas branches of the banks, the source added. Most of the 30 banks have exposures of Rs 300 to Rs 450 crore each to Gitanjali Group, another senior banker said.

The Nirav Modi brand is owned by Firestar Diamond International and it has 26 subsidiaries. It is a diamond trading and jewellery firm founded by Modi, which also owns A Jaffe, another jewellery brand, and produces jewellery for other labels in the US. His other companies include Stellar Diamonds, Diamond R Us and Solar Exports.

Meanwhile, chairman of Punjab National Bank Sunil Mehta lost his cool and abruptly cancelled the analyst conference call on Friday evening when he realised that the media had also logged in to the call.

Before calling off the meet, Mehta told analysts that the bank's capital position is strong enough to take care of the losses emanating from the fraud. He clarified that the RBI has not given any instructions to the bank and that the central bank is assessing the situation. DNA Money had reported on Friday that the apex bank was yet to step in even as one of the biggest banking frauds unrolled in India.

During 2011-2017, several fraudulent LoUs were issued by the PNB's Brady House branch in Mumbai to the companies belonging to Modi and his uncle Choksy. These include Gitanjali Gems (Rs 2,144 crore), Gili India (Rs 567 crore), Nakshatra (Rs 321 crore), Solar Export (Rs 2,153 crore), Stellar Diamonds (2,135 crore), Diamond R US (2,211 crore) and Chandri Papers (Rs 9 crore). Modi is already being investigated by CBI for fraud worth Rs 280 crore involving the same bank, according to the FIR.

No directive to PNB, says RBI

RBI on Friday rubbished some media reports which said that RBI had directed PNB to repay all the other banks. The Reserve Bank of India (RBI) in a late evening release said there have been reports in the media that in the wake of fraud involving a sum of USD 1.77 billion that has surfaced in Punjab National Bank (PNB), the Reserve Bank of India (RBI) has directed PNB to meet its commitments under the Letter of Undertaking (LoU) to other banks. RBI denies having given any such instructions.

The fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls. RBI has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action.

DNA Money on Friday carried a story saying that RBI sits mum while some news papers reported on a fictitious meeting called by RBI.