Analyzing Nirav Modi’s Fraud – Another biggest Fraud Under Modi’s Regime

A chilling revelation of PNB's 1.8 billion dollar scam has brought entire nations attention. Till now the transactions made by banks were assumed to be quite secure as were supposed to be kept in check. Banks usually keep huge precautions while lending even a small lone then how could 11,000 crore Rupees vanished even without a single hiss. Let's try to figure out this entire scam

Analyzing Nirav Modi’s Fraud – Another biggest Fraud Under Modi’s Regime
Analyzing Nirav Modi’s Fraud – Another biggest Fraud Under Modi’s Regime

What is this Scam?

Every company working abroad works with the help a simple concept of credit. As per RBI norms, a company can only get credit if it has a bank which guarantees to pay on its behalf if the company is unable to return the credit at the right time of period which extends to 90 days. So as a doc of assurance which is LoU (Letter of undertaking) by the guarantee bank to the bank which is giving the credit which in this case PNB gave the number of LoU to other banks like Axis and Allahabad Bank without even filing it in bank records. This Scam came to light when the companies which gave credits to Nirav Modi asked PNB to pay behalf of Nirav Modi for the period of 90 days had come to an end. As a result, PNB reported to Enforcement Directorate (ED) and suspended its 10 employers of which 2 are said to be the masterminds.

How did it happen?

As it’s clear that the case here is of giving LoUs to the other banks without the consent and knowledge of PNB since 2011. The process of providing credit here (i.e., in this case, foreign-based companies which provide raw gems to Nirav Modi and Geetanjali) constituted a credit giver bank, LoU providing Bank, Foreign-based gem provider company and Nirav Modi. So actually, the scam started in the first place at Punjab National Bank’s Mumbai based branch. What happen is that before any LoU is granted it is cleared via 3 layer of cross-check and then transfers to the foreign bank by SWIFT (Society for Worldwide Interbank Financial Telecommunication) which is still confirmed and checked by the accepting Bank (Axis and Allahabad Bank) but despite providing LoU 2 PNB employees never informed the bank and pilled debt one by one. As time passed and PNB was asked to pay the debt behalf of Nirav Modi Company they were puzzled as these LoU never existed to their knowledge giving rise to a Rs 11,000 crore scam.

Who is who?

As the damage is already done it brings Nirav Modi at the center of the scam. The LoUs were provided for a foreign-based company which imported raw diamonds to Nirav Modi and Gitanjali. Nirav Modi and Mehul Choksi of Geetanjali Gems are already being named in complaint filed to ED.

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What’s now?

This scam has come at the time when the banking sector is at its knees. SBI has already surprised everyone reporting Rs 2,416 crore loss previous quarter and this PNB scam has already plunged lots of investors in a dilemma which resulted in a panic causing 22% fall in stocks of PNB which wiped almost Rs 8,368 crore in market capitalization. Despite PNB’s assurance that it would reclaim its normal position within 3 months, it will still lay a deep impact on the faith and function of said to be an impenetrable mechanism and would slow down the market for a time.

Blame Game?

With this scam in light, center and opposition parties are again back with their blame game. Where Congress and AAP has waged war against BJP over this issue and raising fingers on the close relations with diamond-based businessmen Nirav Modi who was seen to accompany PM Narendra Modi in Davos and Mehul Choksi being addressed by Prime Minister himself in one of his speeches as “Mehul Bhai” has brought huge wrath on social media. BJP also stepped in with claims that the scam was born in tenure of Congress making them solely responsible for it. Whereas issue lies Government has indicated that whatever happens culprits won’t be spared. RBI has also indicated that it won’t be laying any pressure on PNB over the payment of credit to banks.

Fate of Nirav Modi

It has become a trend for defaulters to leave the country before the mess is laid. It’s reported that family of Nirav Modi has already left the country in January. Nirav Modi was also seen in Dubai and was scheduled to inaugurate his Jewellery Showroom in Morocco. ED has already raided many showrooms of Nirav Modi and Geetanjali and even attached 21 accounts regarding them in an investigation.

A similar case was reported a few years back where the gem company owner’s family escaped and obtained citizenship of Dubai and Singapore. Even Vijay Mallya and Lalit Modi left the country with shock and we know what the status of the issue is so nothing much should be expected. For now, no doubt lanes of politics are down with new low frowning at each other, painting walls with #chotaModi and #ItallianPappu but as a long-term, it may have a strong impact.

Article Written by: Mr. Ahsan Farooqui