The income tax department has estimated that the public sector banks could suffer a damage of more than $3 billion from the credit and corporate guarantees lent to Nirav Modi, the catalyst behind the massive PNB scam and the diamond companies linked to him.
According to a note prepared by the income tax department in its preliminary investigation, banks had granted loans worth 176.32 billion to the companies led by Nirav Modi and his relative Mehul Choksi. The loans would have increased over the previous year and the total “hit” to the lenders “may well exceed” $3 billion.
The tax note revealed that the letters of undertaking, issued by two junior officials at the Mumbai branch of the Punjab National Bank were transferred through the SWIFT interbank messaging system and were not recorded on the bank’s internal software, “thus avoiding early detection of fraudulent activity.”
It was also found that many companies linked to the billionaire jeweler and his uncle listed people of limited means as majority partners. Those people remained unidentified in the tax note.
The total loans in Modi’s three firms- Stellar Diamond, Solar Exports and Diamonds ‘R Us amounted to 39.929 billion rupees, while total capital of the partners was 4 billion rupees. The note said that the companies’ “trade receivables” were “much higher than total turnover of the three companies involved in the fraud, which reveals that goods are being sold for related party and are either over-invoiced or not coming at all”.
Initial investigations revealed that Mehul Choksi led Geetanjali gems and its subsidiaries dealt with 32 banks in total, including Union Bank of India, Allahabad Bank and Axis Bank. Union Bank of India said that it has an exposure of $300 million as a counter-party lender, while Axis Bank said it has sold all its exposure related to the fraud.