Shares of Punjab National Bank plunged almost 10 per cent on Thursday, shaving off around Rs 3,800 crore in its market capitalisation in a single day after the second-largest state-owned lender disclosed that a fraud amounting to $1.8 billion has been detected at one of its branches in Mumbai.
"Based on these transactions other banks appear to have advanced money to these customers overseas", the bank said, adding that the fraud had been reported to enforcement agencies for further investigation.
That's when the bank started its investigation.
On Thursday, the Enforcement Directorate launched a nationwide raid on the offices, showrooms and workshops of Nirav Modi.
A fraudulent transaction at a Mumbai branch has punched a possible $1.77-billion hole in Punjab National Bank's coffers, the State-run bank told stock exchanges in a filing. His flagship company Firestar Diamond has said it had no involvement in the case. Two PNB bank officials, retired deputy manager Gokulnath Shetty and SWO Manoj Hanumant Kharat, were the first to be detected as working with Nirav Modi. Jaikishan J. Parm-ar, research analyst, Angel Broking, said news of this fraud dampens sentiments around PNB, which had seen a marginal improvement in its asset quality in this quarter.
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When Nirav Modi companies asked for LoUs for raising buyers' credit after the retirement of the PNB employee involved in the scam, the Punjab National Bank sought 100 per cent cash margins for issuing LoUs.
Based on these transactions, done by his brother Nishal, wife Ami and business partner Mehul Chinubhai Choksi, other banks appear to have advanced money to these customers overseas. The ED subsequently initiated inquiries and booked the Modis under the Prevention of Money Laundering Act.
The Reserve Bank of India (RBI) too is looking into the alleged illegal transactions.
The PNB scam has affected other Indian banks, according to media reports, because these banks had lent money on the basis of Letter of Understanding (LoU) issued by PNB.
News agency PTI said that the transactions cited by the bank in its complaint were linked to Nirav Modi and a jewellery company.
The fall dragged the National Stock Exchange's Nifty PSU bank index down 2 percent on Thursday, after it fell as much as 2.8 percent on Wednesday. The bank reported a net worth of Rs 38,096.45 crore for FY 17. "In view of these exchanges different banks seem to have propelled cash to these clients overseas", the nation's third biggest open division bank said in its recording.