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PNB fraud impact: Union Bank says it has Rs 1,915 crore exposure

Union Bank of India in a filing to the stock exchanges said the bank through its foreign branches has been taking exposure with Punjab National Bank (PNB), as counterparty under various Letters of Undertakings (LoU).

business Updated: Feb 16, 2018 11:49 IST
Press Trust of India, Mumbai
Punjab National Bank‬,Nirav Modi‬,‪Mumbai
Union Bank of India shares dropped 2.37% to Rs 117.25 on the BSE on Friday.(Reuters)

State-owned Union Bank of India has said it has an exposure of $300 million (around Rs 1,915 crore) to the Rs 11,400-crore PNB fraud case, but stressed its money is safe and the bank will recover it.

“We wish to inform you that the bank through our foreign branches has been taking exposure with Punjab National Bank (PNB) as counterparty under various Letters of Undertakings (LoU) issued through authenticated SWIFT message,” said Union Bank of India late Thursday in a filing to stock exchanges.

The bank has also purchased some buyers credit assets from Axis Bank through Risk Participation as a part of normal International Business Practice, it said.

“The outstanding exposure related to the incident is approximately $300 Million and the Bank is fully secured by LoU /LC /Other documents and fully confident to receive the payment,” said the filing.

Union Bank of India shares dropped 2.37% to Rs 117.25, while the PNB stock fell over 3% to Rs124.45 on BSE.

On Thursday, fraud-hit PNB said it will honour its “bonafide commitments”and the entire liability will be known after the investigation.

The PNB fraud pertains to issuance of fake letters of understanding (LoU) to companies associated with billionaire jeweller Nirav Modi by errant PNB employees, which enabled these companies to raise buyers credit from international branches of other Indian lenders.

Last week, PNB had lodged an FIR with CBI stating that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16. At the time, PNB had said it was digging into records to examine the magnitude of the fraud.

In the complaint, PNB had named three diamond firms -- Diamonds R Us, Solar Exports and Stellar Diamonds -- saying they had approached it on January 16 with a request for buyers credit for making payment to overseas suppliers.

The bank sought 100% cash margins for issuing LoUs for raising buyers credit, which was contested by the firms saying they had availed of the facility from as early as 2010.

Nirav Modi, his wife Ami, brother Nishal and Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and New York.

First Published: Feb 16, 2018 11:30 IST