The Enforcement Directorate on Thursday conducted searches at 17 premises across India linked to billionaire jewellery designer Nirav Modi and seized diamond, jewellery, and gold worth Rs 5,100 crore.
The case is raising concerns about the possible impact across the banking sector at a time when the country is struggling to meet its economic growth targets.
The fraud amounts to almost a third of Punjab National Bank's (PNB) market value, and 50 times its profits for the last quarter of 2017. PNB said in its statement that the fraud was discovered through the SWIFT trail when the official allegedly in cahoots with Modi had retired and one of his companies reached out for a loan.
Nirav Modi's wife Ami, a U.S. citizen, left on January 6 and his uncle and business partner Choksi, the promoter of Gitanjali jewellery chain, left on January 4, the officials said.
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The government on Thursday slammed Congress for using "chhota Modi" remark to target the government over Rs 11,400-crore Nirav Modi fraud case. "The Income Tax (Department) is taking very strict action against him (Nirav Modi)", he said. It did not name the banks or the customers. They pointed out at the irregularities in bank loan started in 2011 when UPA was in power and it was the BJP government which launched the investigations.
Bank of Baroda's share prices also tanked 4%.
"(The fraud) is a reminder that the bank recapitalisation scheme that the government outlined months ago doesn't solve the problems in Indian banking", said Mr Mihir Sharma, a prominent Indian economist and columnist. This government is taking cognisance of matters and investigating them. The fall had wiped 68.6 billion rupees, or 21 per cent, off PNB's market value.
The state-owned bank said it had detected Dollars 1.77 billion fraud in which billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking (LoUs) from one its branches for overseas credit from other Indian lenders.
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Posing five questions to the government, the Congress said the Prime Minister should speak on the "biggest banking loot of the past 70 years" and explain how the jewellery designer was allowed to flee despite the PNB writing to the CBI on January 29 this year to issue a look-out circular against Nirav Modi. Other lenders give credit based onsuch letters of undertaking. Modi is reportedly not in India right now.
The CBI has not yet said yet if the case is connected to the $1.8bn fraud.
Earlier on Wednesday, the Punjab National Bank had confirmed fraudulent activities at its branches in Mumbai, worth transactions $1771.69 million for the benefit of some account holders.
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