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Report: Punjab National Bank to pay 60B rupees to lenders caught in fraud case

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Report: Punjab National Bank to pay 60B rupees to lenders caught in fraud case

Punjab National Bank has agreed to honor 60 billion rupees of claims by other lenders against credit guarantees linked to a US$2 billion fraud case, The Economic Times reported March 13, citing "two senior officials with knowledge of the development."

However, the payments will be made once the banks agree to certain conditions. The claimant lenders will first have to agree to be liable for their respective sums, due by the end of March, if they were found to be complicit in the fraud, the sources said.

In February, state-owned Punjab National Bank reported that it detected US$1.77 billion worth of "fraudulent and unauthorized" transactions at one of its branches in Mumbai. It was subsequently found the branch's officials issued letters of undertaking — a form of credit guarantee — to companies linked to jewelers Nirav Modi and Mehul Choksi for buyers' credit, without having first obtained the necessary approvals. Union Bank of India, Allahabad Bank and UCO Bank, all state-run banks, are some of the lenders that have reportedly made payments based on suspect letters of undertakings.

According to the sources, Punjab National Bank will issue a letter to the claimant banks setting out their liability "to make good the payment if the findings by the investigative authorities prove that there was malafide intent" on their part. Once the banks "acknowledge" this condition, Punjab National Bank will pay out the claims.

Punjab National Bank is also in talks with the Indian government over concerns that a provision "could erode their capital substantially," the sources added, including the possibility of amortizing the provisions over a one-year period.

As of March 12, US$1 was equivalent to 64.99 Indian rupees.