UPDATE 1-India's PNB says has ability to recover after uncovering giant fraud

From Reuters - February 15, 2018

NEW DELHI (Reuters) - Punjab National Bank, Indias second-largest state-run lender, said on Thursday it has the capability and capacity to recover after uncovering a staggering $1.77 billion fraud at one of its branches that went undetected for years.

The loan fraud - the largest ever in Indian history - has sent PNBs (PNBK.NS) shares tumbling about 20 percent this week.

This cancer thats been going on since 2011, we have brought it out and we are resolving it, PNBs Chief Executive Sunil Mehta said at a press briefing, adding that the bank would honor all its commitments.

If the entire onus is on us, we will take responsibility, Mehta said, adding the bank has taken action to book culprits and protect its financial interests.

The bank said Nirav Modi, a billionaire jeweler and diamond merchant it believes to be at the center of the fraud case, has so far not come up with any concrete plan to repay PNB. The bank said it has asked Modi to come up with a formal repayment plan.

Modis jewelry stores and other business establishments were raided by law enforcement officials in Mumbai and New Delhi on Thursday, Reuters witnesses said.

Modi, who has not spoken about the case so far, could not be reached for comment. His flagship company Firestar Diamond has said it had no involvement in the case.

Indian bank shares slid further on Thursday a day after being hit by news of the bank fraud.

PNB, which has assets of $120 billion, disclosed the fraud in a regulatory filing on Wednesday, saying it had referred the matter to law enforcement agencies.

Given the scale of the fraud, the fallout from the case could spread and give rise to fresh questions about lending procedures at Indian lenders, particularly public sector banks, mired in soured debt.


PNB first notified Indias Central Bureau of Investigation (CBI) of its discovery in late January, and on Monday it issued a caution notice to warn other lenders about the suspected fraud.

PNB has said that two junior officials at one of its branches in Mumbai had illegally issued letters of undertaking to get overseas branches of other lenders to extend credit to a few select account holders, most notably companies with ties to Modi, who runs a global diamond jewelry business.



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