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India State Banks Reveal Exposure in Billion-Dollar Fraud Case

Updated on
  • UCO Bank set for biggest fall since ’16 on disclosing exposure
  • Authorities have arrested former Punjab National Bank manager

Shares of India’s government-controlled banks fell on Monday as more lenders disclosed exposure to one of the nation’s biggest frauds.

UCO Bank tumbled 7.5 percent as of 9:26 a.m. in Mumbai -- set for the steepest plunge since September 2016 -- after it said it has exposure of $411.8 million in the nearly $2 billion bank fraud allegedly perpetrated by billionaire jeweler Nirav Modi against Punjab National Bank. PNB dropped 2.4 percent, its fourth straight day of declines.

PNB was leading losses among state-run peers on the 10-member Bankex, which was up 0.1 percent. The main S&P BSE Sensex Index was little changed.

Risk of Loss

UCO Bank’s Hong Kong branch granted loans against letters of credit issued by PNB, UCO Bank said in a filing with the Bombay Stock Exchange late on Saturday. Other banks, including State Bank of India and Union Bank of India, are also said to be at risk of loss.

In all, Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies allegedly involved in the fraud at PNB, Reuters reported on Saturday, citing the tax department.

In its complaint to the Central Bureau of Investigation, PNB alleged that the fraud was led by Modi, who’s dressed Hollywood actors including Kate Winslet and Bollywood actors such as Priyanka Chopra. Modi, 47, is No. 85 on Forbes’s 2017 list of India’s richest people.

Modi hasn’t spoken publicly about the allegations. He is in New York City, and the ministry of external affairs on Friday suspended his passport, The Times of India reported.

Read more: One of India’s Richest Men Allegedly Executed a $2 Billion Fraud

The CBI has arrested Gokulnath Shetty, a former deputy general manager at PNB, and Manoj Kharat, a so-called “single window operator” at the lender, CBI spokesman R.K. Gaur said on Saturday.

Hemant Bhat, an authorized signatory of the Nirav Modi Group of firms, has also been held, Gaur said.

A special court in Mumbai late on Saturday remanded the three suspects to the CBI’s custody for 14 days, saying the case has "consequences for the economy of the nation," the Press Trust of India reported.

Raids were being conducted across India by the Enforcement Directorate, and included the seizure of about 56.7 billion rupees ($883 million) in diamonds, gold, precious stones and jewelry, the Press Trust of India said in a separate report on Saturday.

PNB on Friday told the National Stock Exchange and Bombay Stock Exchange that it has also filed complaints against Mehul Choksi’s Gitanjali Group of companies. PNB alleges that Modi and Choksi worked with Shetty, who was posted at a PNB branch in Mumbai from where the fraud originated.

The bank claims they used fake PNB guarantees worth $1.8 billion to obtain loans from the overseas branches of Indian banks, claiming to need the cash to import pearls, according to documents made public or seen by Bloomberg.

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