Some banks have direct exposure to Nirav Modi's companies
The fraudulent transactions at Punjab National Bank are likely to hit the books of other lenders as well. Doubts about similar fraudulent practices at other banks were gathering steam, analysts said.
The impact of the PNB fraud will extend to counter parties (lenders), hit their asset qualities and increase provisions for bad loans.
Most bankers said the entire liability would fall on PNB since the letters of understanding (LoUs) availed by Nirav Modi’s companies were issued on behalf of the bank’s Mumbai branch.
Some banks, however, have direct exposure to Nirav Modi’s companies, though they have been standard assets so far.
Bankers said Modi sent LoUs to banks stating that he would square off all his dues and that his company Firestone Diamond was up for sale. The valuation of the company was Rs 105 billion, he claimed in the letter.
But according to a PTI report, the CBI investigation has now expanded to a number of jewellery companies, which could be a cause for concern for banks. The nature of banks’ engagements with jewellery companies was not clear.
"Four big jewellers — Gitanjali, Ginni, Nakshatra and Nirav Modi — are under scanner. The CBI and the Enforcement Directorate are looking at their arrangements with various banks and the end use of money," a senior official of a public sector bank told PTI.
Other banks may not have much to worry though.
Other banks may not have much to worry though.
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