PNB, which is the country's second-biggest state-run lender and fourth-biggest overall by assets, PNB stock price fell almost 7.8% after bank the detected the fraudulent transactions of worth Dollars 1,771.7 million in one of its Mumbai branch.
In a filing with Bombay Stock Exchange, PNB said the transactions were "for the benefit of a few select account holders with their apparent connivance" and that 'based on these transactions, other banks appear to have advanced money to these customers overseas. "Based on these transactions other banks appear to have advanced money to these customers overseas", PNB said in a regulatory filing.
CBI registered a fraud case against Nirav Modi-related firms and also named two PNB officials for wrongdoing. The case against the famous jewellery designer comes after the Income Tax department raided Modi's offices in Delhi, Surat and Jaipur.
In the stock exchange filing, PNB said that it has reported the fraud to law enforcement and investigative agencies.
According to FortuneIndia, "He was born into a Gujarati family and founded Firestar Diamond".
Banking sources have said several other banks who have extended loans based on the PNB LoUs that were later found to be fraudulent are at risk of losing money. The bank after unearthing the fraud has filed another complaint with the CBI on February 13.
Shares in PNB, the fourth-biggest among all Indian banks by assets, closed nearly 10 percent down on Wednesday. The ED subsequently initiated inquiries and booked the Modis under the Prevention of Money Laundering Act.
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 Hong Kong, Dubai and NY.
Besides, the watchdog and the stock exchanges would analyse trading data of these companies and their top officials, some of whom are already under the scanner for insider trade and other violations, officials said.
He said he had received a "vague email" from the customers involved in the fraudulent transaction about settling the dues and the bank had asked them to send their detailed response.
Consequently, shares of Union Bank of India settled down 0.95%, Allahabad Bank ended the day down 2.31% and Axis Bank was quoted down 0.17%. In a matter of a couple of days, the size of the misrepresentation has developed from Rs 280 crore to over Rs 11,300 crore.
Corporate lawyer and senior partner in legal firm ALMT Legal, Hitesh Jain, said everything depends on how the letters of understanding have been worded. However, there was never a situation of default, sources in the banking industry said.