India's tax department estimated that losses to Indian banks that issued loans and credit guarantees to diamond companies involved in a fraud scheme discovered at Punjab National Bank could total more than $3 billion, Reuters reported, citing a note on the preliminary investigation seen by the news service.
Punjab National Bank said Feb. 14 that it had discovered $1.77 billion of fraudulent transactions at a Mumbai branch. According to the news service, junior officers at the branch issued "letters of undertaking" to diamond companies tied to billionaire jeweler Nirav Modi and Mehul Choksi, Modi's uncle. The letters allowed the companies to get credit with overseas branches of other Indian lenders.
The letters of undertaking were not recorded on the bank's internal software system, according to the tax authority, Reuters reported.
According to the tax authority, bank loans and guarantees to these companies totaled 176.32 billion rupees as of March 2017, and had increased in the interim, Reuters reported. The news service said the diamond companies interacted with 32 banks, including Union Bank of India, Allahabad Bank and Axis Bank Ltd. Union Bank has said its exposure as a counter-party lender totals about $300 million, and Axis said it has sold its exposure, Reuters reported.
As of Feb. 16, US$1 was equivalent to 64.3350 Indian rupees.