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Report: Hong Kong regulator questions Indian banks in fraud case

The Hong Kong Monetary Authority has questioned Indian banks' branches in the city involved in a fraud scheme discovered at Punjab National Bank, India's The Economic Times reported Feb. 19, citing two unnamed senior bank officials.

Allahabad Bank, Axis Bank Ltd., UCO Bank and Union Bank of India are among the lenders that have granted loans to companies linked to Nirav Modi and Mehul Choksi against letters of undertakings issued by Punjab National Bank from their Hong Kong branches.

HKMA is said to be watching the development closely as the incident would have "implications" for Indian lenders operating in the city if payments are overdue, according to the sources.

A Union Bank of India bank official from the international department noted that a failure in honoring dues would result in banks facing action from overseas regulators.

On Feb. 14, Punjab National Bank detected US$1.77 billion of "fraudulent and unauthorized" transactions at one of its branches in Mumbai and reported them to law enforcement agencies.

Allahabad Bank, UCO Bank, Union Bank of India and State Bank of India previously admitted having exposure of 22 billion rupees, 26.36 billion rupees, 19.15 billion rupees and 13.60 billion rupees, respectively. Axis Bank, on the other hand, said it had sold off the loans related to the fraud.

As of Feb. 19, US$1 was equivalent to 64.51 Indian rupees.