Investigators Summon Top Bank Chiefs as India Widens Fraud Probe

Updated on
  • Enforcement Directorate said to seek meetings with 31 banks
  • Serious fraud unit to meet CEOs of ICICI, Axis Bank: report
Photographer: Dhiraj Singh/Bloomberg

Federal investigators are seeking to question the chiefs of India’s biggest lenders as they widen their probe into the $2 billion fraud at Punjab National Bank.

The Enforcement Directorate has written to the heads of 31 banks asking to meet officials about the fraud, according to people familiar with the matter. The investigators will start with state-run PNB on Wednesday and will subsequently cover the other lenders, the people said, asking not to be identified as the details are private.

Separately, the Serious Fraud Investigation Office has summoned Chanda Kochhar, chief executive officer at ICICI Bank Ltd., and Shikha Sharma, her peer at Axis Bank Ltd., for a meeting on Tuesday, CNBC TV18 reported. Both private lenders reportedly have exposure to at least one of the two jewelers that allegedly masterminded the fraud.

Read: $2 Billion Bank Fraud Is Barings Redux for Biggest Indian Lender

"Just being summoned by the authorities doesn’t suggest that all these banks have colluded in the alleged fraud," said Pooja Dutta, a managing partner at Mumbai-based law firm Astute Law. Authorities are seeking clarity and "are leaving no stone unturned in building up a case without any loopholes," she said.

The stock exchange has sought clarification and is awaiting a reply from ICICI Bank and Axis Bank, it said on its website. PNB, Axis and ICICI didn’t immediately reply to emails sent by Bloomberg. A text message to ED Director Karnal Singh was unanswered. Calls to SFIO Director Amardeep Singh Bhatia went unanswered.

The fraud was disclosed about a month ago, when PNB alleged that the jewelers colluded with some PNB officials to get fake letters of undertaking, which they used to obtain loans from the overseas branches of Indian banks. Investigators claim the scam had been running since 2011 and involves multiple regulatory infractions, leaving a web of lenders embroiled in questions about the quality of their compliance.

Shares of ICICI Bank tumbled 2.7 percent to a four-month low in Mumbai on Tuesday. PNB dropped 2.3 percent and Axis Bank fell 1.4 percent, pushing the 10-member S&P Bankex Index to its fifth day of declines.

— With assistance by Ravil Shirodkar

(Updates shares in final paragraph.)
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