Everything About How Billionaire Diamond Tycoon Nirav Modi Conducted The PNB Bank Scam

The Punjab National Bank scam is all over the place, and rightly so! After all, it is being deemed as the largest scam India has ever seen when it comes to banking system. PNB is a public sector bank, and PSU’s have already been dealing with NPA’s and such frauds worsen their balance sheets even further! So, let us have a look at what the scam is all about.


What is the Punjab National Bank scam?

  • India’s 2nd largest PSU were defrauded by Jeweler Nirav Modi, his relatives as well as the 2 PNB’s bank employees of Rs.114 billion.
  • This is the biggest bank fraud which happened in a single branch in Mumbai.
  • The shares of PNB dropped by almost 22% and approximately Rs.8.5k crore wiped out in 2 days.
  • This comes at a time when approx. Rs.5000 crore recapitalization package from Indian government was to be given to PNB bank to uplift its operations. However, now the money would go just to overcome half of the money gone in fraud.


Who is Nirav Modi?

  • He is billionaire in the diamond jewelry designing and trading company.
  • Chairman of Firestar International.

How did the fraud come out?

  • PNB gave stock statement (Share price, opening closing, and outstanding shares) to the BSE where it said that it had detected fraudulent transactions.
  • It also complained to the CBI.

How was the scam conducted?

  • Nirav Modi along with relatives approached PNB to get Letter of Undertaking (LoU).
  • Bank had no previous history with them and asked for 110% cash margin. Nirav, along-with others, contested that they have been availing this facility since long.
  • Upon background check, it came to the light that 2 employees of PNB bank in the past had sanctioned LoU without procedure and approval to Nirav Modi.
  • The 2 employees had then transmitted SWIFT instructions to the foreign branches of Indian banks Allahabad and Axis Banks, Hong Kong to release the credit (and hence not getting detected in the banking system.)
  • Thus, the foreign banks disbursed loans to Nirav Modi’s accounts. Now, he has to pay PNB bank, who in return will pay the foreign banks.
  • However, since PNB did not know they were liable to pay, Modi got away with the money. This is how the scam was conducted.


What is LoU?

  • LoU by a bank (PNB in this case) promises to repay the loan of a person (in this case Nirav Modi) who received the LoU and then defaults it.
  • With these LoU, Nirav Modi got Buyer’s credit (short term loan at low interest rate from overseas lender). He is an importer who used the foreign money for importing purpose (but it turned out that he did not use it for the mentioned reasons.)
  • SWIFT is like an IFSC code of foreign branches to conduct international transactions.

What is the current status of the case?

  • PNB is under pressure to pay off the loans to the foreign banks so that only one bank’s balance sheet would be affected.
  • However, PNB is these transactions are contingent in nature and liabilities shall be decided by the law. They argue that the LoU’s were fake and hence should be accounted to pay back the loan.
  • Nirav Modi, has been allegedly has been traced to an apartment in New York’s Manhattan.
  • The big business-men tycoons who have a chain of business can easily manipulate the system and siphon off trillions of money without detection. By the time it is detected, the tycoon has already fled from the country. Thus, begin a long chase by the Indian government to extradite the culprit. The India government’s hands are already full with Vijay Mallya, NPAs, inflation and an extra scam such as this only adds burden to the nation.
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He eats Internet for breakfast, Sarcasm for lunch and Gratitude for Dinner. He is currently working on building a Time-Machine, and this can be seen in his love for writing on the nostalgic things that have happened, the trending news that goes on and the amazing possibilities that are yet to happen.

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