143 LOUs issued to Choksi’s companies in two months, CBI says he alone defrauded PNB of Rs 4,886 crore.
New Delhi: Punjab National Bank issued 143 letters of undertaking (LOUs) and 225 Foreign Letters of Credit amounting to Rs 4,886.72 crore to three of Mehul Choksi’s companies over two months between March and May 2017, investigations into the Rs 11,800-crore scam has revealed.
While 143 LOUs were worth Rs 3008.72 crore, the 225 Foreign Letters of Credit amount to Rs 1798 crore.
This would, in effect, make Choksi the bigger defaulter than his nephew and high-profile jeweller Nirav Modi, CBI sources say. The three companies to which these 143 LOUs were issued include Geetanjali Jewellers, Gili India and Nakshatra.
Similar LOUs were also issued in February 2017, to Nirav Modi’s companies including, Diamond R US, Solar Exports and Stellar Diamonds, eight of which have been mentioned in an initial FIR filed by the CBI on the complaint of PNB.
An LoU is not a loan but a guarantee given by a bank branch in India to an overseas bank that it would meet the liability if the firm borrowing from it (foreign bank) defaults. Diamond firms use LoUs for securing cheap, low interest “buyer’s credit” in dollars overseas, mostly to purchase rough diamonds. Banks are always supposed to cover their LOUs against collaterals, which wasn’t allegedly done in this case.
A Foreign Letter of Credit is given to banks overseas to ensure that payment can be made to foreign suppliers.
LOUs issued on a daily basis
The banks to which the LOUs were issued, include Frankfurt and Mauritius branches of the State Bank of India, Bahrain branch of Canara Bank, Antwerp (in Belgium) branch of Bank of India, and Hong Kong branches of Axis Bank and Allahabad Bank.
Out of 143 LOUs issued, 35 were for Gili India, 17 for Nakshatra and 91 for Geetanjali. While the principal amount mentioned in the LOUs for Gitanjali Gems is Rs 2,144 crore, it is Rs 566 crore for Gili India and Rs 321 crore for Nakshatra.
The Foreign Letters of Credit on the other hand amount to Rs 1798 crore. The Principal amount for Geetanjali being Rs 575 crore, Rs 635 crore for Gili and Rs 598 crore for Nakshatra.
The investigations also revealed that PNB had not only carelessly issued the LOUs to these three companies, they also flouted RBI guidelines by extending the validity of those letters.
According to RBI norms on LOUs issued for diamond and precious stones, the validity of the letter cannot be more than 90 days and it cannot be rolled over more than twice. However, in this case several LOUs were issued and frequently revised.
What the new FIR says
The 22-page CBI FIR mentions details of all 143 LOUs that were issued by PNB to overseas branches of banks in just three months.
The FIR mentions names of 16 accused and companies, including unnamed PNB officials who allegedly facilitated issuance of LOUs to the companies. The CBI suspects that it could not have been possible without the connivance of higher-ups in the bank.
“We suspect the involvement of higher-rung officials in the scam which is being looked into,” an official said.
Apart from unnamed PNB officials, the ones named in the FIR are: Mehul Chinubhai Choksi, managing director Geetanjali Jewels; Dinesh Gopal Das Bhatia, director Gili and Nakshatra; Aniyath Shivarama Nair, director Gili India; Dhanesh Vjralal Seth, director Gilli, Nakshatra and Geetanjali; Jyoti Vora, director Nakshatra; Anil Umesh Haldipur, director Nakshatra; Chandrakant Kanu Karkare, director Gitanjali; Pankhuri Abhijeet Warange, director Gitanjali and Mihir Bhaskar Joshi, director Gili.
How these LOUs were issued
Sources told ThePrint, the some bank officials deliberately did not make entries of letters issued in the banking system, to avoid detection.
Similarly, in case of foreign letters of credit (FLCs), they were initially opened for a smaller amount by creating purported entries in the core banking system, (CBS) and then sent through SWIFT messages – a messaging format used by financial institutions.
“The bank officials involved in the scam unauthorisedly enhanced the values of the FLCs and issued amendments to the earlier FLCs through SWIFT messages without recording it in the core banking solution system,” an official explained.
Who is Choksi?
Choksi is the managing director of ‘Gitanjali Gems’ and also the maternal uncle of Nirav Modi.
He had taken over Gitanjali Gems from his father Chinubhai Choksi in 1985. He built an extended product-portfolio by launching brands such as Gili, Nakshatra, Asmi, D’damas, Maya, Diya, and Sangini.
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To put these large losses in perspective, the Navi Mumbai airport will cost 16,000 crores, which includes land acquisition compensation that has ballooned. Uncle and nephew have stolen a jewel of infrastructure from the Indian people.