{"id":30802,"date":"2018-10-26T18:17:42","date_gmt":"2018-10-26T12:47:42","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=30802"},"modified":"2018-10-26T18:17:42","modified_gmt":"2018-10-26T12:47:42","slug":"banks-face-3-bn-write-off-from-pnb-scam","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/banks-face-3-bn-write-off-from-pnb-scam\/","title":{"rendered":"Banks face $3 bn write-off from PNB scam"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/business\/Industry\/banks-face-3-bn-write-off-from-pnb-scam\/article22953297.ece\"><b>Banks face $3 bn write-off from PNB scam<\/b><\/a><\/p>\n<p><b>Context:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">12,700 crore Letters of Undertaking (LoU) fraud at the Punjab National Bank (PNB) could punch a bigger hole in India\u2019s banking system.<\/span><\/li>\n<\/ul>\n<p><b>Introduction:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The closure of Nirav Modi and Mehul Choksi\u2019s jewellery businesses by investigative agencies, is likely to result in another <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">8,000 crore of loans extended to them by banks turning into non-performing assets (NPAs).<\/span><\/li>\n<\/ul>\n<p><b>Reserve Bank of India\u2019s guidelines:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">According to Reserve Bank of India (RBI) guidelines, banks have to write off the entire loan amount once a fraud has been reported.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The entire $2 billion exposure of the country\u2019s second largest bank PNB through LoUs issued in favour of Nirav Modi group firms will have to be booked as an NPA.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Banks are preparing for another <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">8,000 crore or about $1.2 billion in bad loans, taking the total damage to about $3 billion.<\/span><\/li>\n<\/ul>\n<p><b>ICICI Bank:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">ICICI Bank leads the consortium of lenders to Choksi&#8217;s Gitanjali Gems.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> The total amount of bank loans to Gitanjali stands at around <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">5,300 crore.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">ICICI Bank has an exposure of <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">500 crore .<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> However, Punjab National Bank has the largest exposure to the Gitanjali group.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bank loans to Nirav Modi\u2019s firms \u2014 Firestar International Private Limited and Firestar Diamond International Private Limited \u2014 stand at about <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">2,500 crore.<\/span><\/li>\n<\/ul>\n<p><b>Special mention accounts(SMA-2):<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bankers said the loans to these companies were already at the second category of special mention accounts (SMA-2).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If a loan repayment is due for over 60 days but less than 90 days, the account is accorded SMA-2 status.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If the dues remain unpaid for 90 days, it is classified as non-performing.<\/span><\/li>\n<\/ul>\n<p><b>Shops closed:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Gitanjali Gems sold jewellery under brands such as Gili, Nakshatra, Asmi and Sanjini.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Nirav Modi\u2019s stores as well as those operated by Mr Choksi\u2019s Gitanjali Gems shut shop across the country after raids by investigative agencies.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">All the shops are now closed, their business is definitely hit and they are not in a position to repay their debt.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> \u00a0<\/span><span style=\"font-weight: 400;\">This would mean bank exposure to these entities will have to be classified as non-performing.<\/span><\/li>\n<\/ul>\n<p><b>Background:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">On February 14, 2018, PNB, the second largest lender of the country, informed stock exchanges about the fraudulent transactions of $1.8 billion or <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500 crore in which unauthorised letters of undertakings were issued to secure overseas credit.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Later, the bank said the amount of fraudulent transactions could go up by another $204.25 million or <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">1,130 crore, taking the total money involved in the scam to $2 billion.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Enforcement Directorate, which conducted searches at several premises of Nirav Modi and Gitanjali Gems across the country has seized assets over <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">5,000 crore, sealed a gamut of properties and frozen several bank and demat accounts.<\/span><\/li>\n<\/ul>\n<p><b>Recent breakthrough:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In a major breakthrough, the Central Bureau of Investigation recently arrested Vipul Chitalia, the vice-president (banking operations) of Mehul Choksi\u2019s Gitanjali Group of companies, in connection with the Punjab National Bank fraudulent transactions.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Banks face $3 bn write-off from PNB scam Context: The \u20b912,700 crore Letters of Undertaking (LoU) fraud at the Punjab National Bank (PNB) could punch a bigger hole in India\u2019s banking system. Introduction: The closure of Nirav Modi and Mehul Choksi\u2019s jewellery businesses by investigative agencies, is likely to result in another \u20b98,000 crore of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/banks-face-3-bn-write-off-from-pnb-scam\/\">Continue reading <span class=\"screen-reader-text\">Banks face $3 bn write-off from PNB scam<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-30802","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704710717},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/30802","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=30802"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/30802\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=30802"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=30802"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=30802"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}