More Arrests in India’s Biggest Ever Bank Scandal

Published: 20 February 2018

By Mattha Busby

Indian police have now arrested six suspects in connection with the biggest loan fraud in the country’s history, the BBC reported on Monday.

Last week authorities arrested three people, including two employees of the Punjab National Bank, suspected of being involved in the scandal. Another three were arrested on Monday, including two bank managers.

Officials at the bank’s single Mumbai branch allegedly allowed a small pool of customers to take out unauthorized loans, steering the money to secretive firms and private accounts which could be accessed by Nirav Modi, a billionaire diamond-dealer. The fraudulent advances amounted to US$1.8 billion, according to the country’s National Bank.

A billionaire celebrity jeweller, Nirav Modi, is among those accused of colluding with employees at Punjab National Bank who issued him dud letters of guarantee. He then used them to raise loans from overseas Indian banks.

Modi is understood to have left India last month and is currently incognito, although he was seen in January in Davos during the World Economic Forum. The government has since suspended his passport.

The governments’ finance ministry blamed the Reserve Bank of India (RBI), India’s central bank, for failing to detect the fraud, despite its gigantic scale.

It said it raised questions around its "efficacy of supervision to detect and check systemic failure", Reuters reported. "Either the framework designed by RBI to prevent and detect such frauds is inadequate or RBI is unable to ensure its effective implementation."

The RBI, however, blamed the “delinquent behaviour by one or more employees of the bank and failure of internal controls.”

In its statement it said that it “has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action.”

The state banking sector in India accounts for around 70 percent of its banking assets, while PNB is the country’s second-largest lender. It is likely that the ramifications of this scandal will continue to ripple through India’s banking and finance industry.

Meanwhile, PNB shares fell for a fourth consecutive day on Monday, closing 7 percent lower, capping a sell-off that has wiped approximately US $1.7 billion from the bank’s market value since details of the fraud emerged.