Nirav Modi: Further raids carried out as Indian authorities widen bank loans probe

INVESTIGATORS in India raided the offices of jewellery retailer Gitanjali today (16) in a widening probe into a $1.77 billion loan fraud at state-run Punjab National Bank, the biggest bank scam in the country's history.

The case is centred around diamond billionaire Nirav Modi who is accused of colluding with bank employees to fraudulently obtain advances for payments to overseas suppliers to his business stretching from New York to London to Beijing.

Yesterday (15), companies linked to Modi, who is out of India and whose whereabouts are not known, were raided and today, the federal police, the Central Bureau of Investigation (CBI) targeted the Gitanjali group of firms led by his uncle, Mehul Choksi.

A police source said the CBI, in a new case, has accused the Gitanjali group of defrauding PNB, the country's second largest lender, of $763 million.

India's foreign ministry said it has suspended the passports of Modi and Choksi for four weeks, and has given them a week's time to voice objections to its plan to revoke the documents.

Searches were conducted at 20 places in six cities, including offices, factories and residences, linked to Gitanjali and its directors, the police source said.

Choksi, who is a managing director of Gitanjali Gems Ltd, did not answer his mobile phone. Gitanjali Gems also did not respond to a request for comment.

Gitanjali has previously denied Choksi's involvement in the fraud and said he would take "necessary legal action" to get his name removed from the police case.

The biggest bank fraud in India's history has raised fears about the scale of problems in the banking sector that is already saddled with $147 billion of soured debt. India's banks recently received a $14 billion government bailout.

It has also provided an opportunity for prime minister Narendra Modi's critics to target the government for the loss caused to the state lender and accuse it of wrongdoing in high places.

Law minister Ravi Shankar Prasad said the government won't spare anyone and that law enforcement authorities had seized assets worth 13 billion rupees ($203 million) from Modi.

Modi has not spoken about the case so far. His flagship company Firestar Diamond says it has no involvement in the case.

The new CBI case names three of Choksi's companies, including Gitanjali Gems. The agency has alleged that two bank executives conspired to send unauthorised "letters of undertakings", or LoUs, to overseas Indian bank branches to release funds to accused companies' suppliers or clear their liabilities, the source said.

LoUs are issued by a bank giving some sort of a guarantee on behalf of a company. Other lenders give credit based on the LoU.

PNB said yesterday it has suspended 10 employees during the investigation into the fraud which had gone on undetected for years.

Union Bank of India, another state-run lender, said on Friday it has an exposure of $300 million as a counter-party lender. Axis Bank, a private sector lender, has said it has sold all its exposure related to the fraud.

With investors fretting over the extent of its liability, The Economic Times newspaper reported that India's central bank had directed PNB to pay the entire amount to counterparties.

(Reuters)