Delhi Diary: Massive Fraud Shows How India's Billionaires Manipulate Banking System

By Shakir-Husain Shakir Husain, Bernama’s correspondent in New Delhi shares his take from the Indian sub-continent. NEW DELHI, Feb 19 (Bernama) -- A banking fraud of almost US$1.8 billion (RM7 billion) shows how India's billionaire businessmen can manipulate the country's banking system to steal money. Punjab National Bank (PNB), one of India's largest public sector banks, recently reported the scam in which diamond merchant Nirav Modi's companies were fraudulently issued letters of undertaking (LoUs), or guarantees, which allowed them to obtain loans from overseas branches of Indian banks. The value of transactions in the scam is more than 114 billion rupees (RM7 billion), making it India's biggest banking scandal. Sleuths of India's top investigation agencies -- the Central Bureau of Investigation (CBI) and the Enforcement Directorate -- are now looking into the case, which has not only shaken the banking sector but also led to a blame game between the government and opposition parties. The LoUs were acquired by Modi's companies from a PNB branch in Mumbai with the collusion of bank staff. The bank has named Diamonds R Us, Solar Exports and Stellar Diamonds in its complaint. The CBI has also filed a case against Gitanjali jewellery group's boss Mehul Choksi, uncle and alleged business partner of Modi. The fraud took place over a period of seven years and questions are being raised about the bank's audit methods, risk management practices, and the internal system of checks and balances. The 47-year-old diamond dealer, who enrolled Bollywood superstar Priyanka Chopra as his brand ambassador, and whose companies count Hollywood stars and international celebrities among their clients, left India in January. Modi's family, including his American wife Ami, and his brother Nishal Modi, a Belgian citizen, left the country before the scandal hit the headlines. India-born Modi grew up in Belgian city Antwerp, where his father did diamond business. His brand spread to China, Britain, the US and other places. The government has revoked the passports of Modi and Choksi on the advice of the Enforcement Directorate. The Nirav Modi case has become a major embarrassment to the government, which was under criticism earlier for not being able to stop flamboyant billionaire Vijay Mallya from fleeing to Britain in 2016. Mallya, known as the "King of Good Times", owned the defunct Kingfisher Airlines and an alcohol business empire, and owed Indian banks about 90 billion rupees (US$1.38 billion). The Congress party said Nirav Modi, whom it called "Chhota Modi Two" (Little Modi Two), used his clout to leave the country. It has dubbed Lalit Modi, the tycoon known for managing the Indian Premier League cricket and who fled to Britain after facing a tax probe in India, as "Chhota Modi One". Modi is a common surname in some parts of India. "This is the biggest bank loot scam of independent India and who permitted this scam to happen?" Congress spokesman Randeep Singh Surjewala asked. The government has rejected opposition allegations and vowed that those guilty in the PNB scam will be punished. The diamond merchant last month attended the World Economic Forum in Switzerland. While the country is trying to overcome the Nirav Modi shock, there is another reported bank default of 8 billion rupees (US$128.5 million) involving a big businessman. It's not uncommon for unscrupulous business people or corporates in India to borrow money from banks with the intention of cheating. India's banks are struggling with about US$150 billion in potential bad debt. -- BERNAMA