Mumbai: State-run lenders State Bank of India (SBI) and Union Bank of India said they had an exposure of at least $200 million each to the PNB fraud involving Nirav Modi-helmed companies.
SBI said it had an exposure of $212 million to Punjab National Bank (PNB) with respect to the fraudulent transactions, but did not have any direct exposure to Modi.
“We don’t have any direct exposure to Nirav Modi, but we do have some exposure to PNB,” said SBI chairman Rajnish Kumar at a briefing in Kochi.
PNB on Wednesday said it had detected a Rs11,400-crore financial fraud as part of which billionaire jeweller Nirav Modi and his related firms acquired letters of undertaking (LoUs) from a Mumbai branch to obtain overseas credit from other Indian lenders.
In its complaint to CBI on 29 January, PNB had said it had issued LoUs to Hong Kong branches of Allahabad Bank and Axis Bank.
SBI’s Kumar admitted the lender had some exposure to Gitanjali Gems, among the companies accused of fraud by PNB in its complaint to CBI.
“Our exposure to Gitanjali is small. We are not worried,” Kumar said. He added that loans extended to the gems and jewellery sector stood at less than 1% of SBI’s loan book of Rs16 trillion.
Separately, Union Bank sent a communication to the exchanges on Friday saying its outstanding exposure to LoUs issued by PNB stood at $300 million.
“The outstanding exposure related to the incident is approximately $300 million and the bank is fully secured by LoUs/LCs/other documents and fully confident of receiving the payment,” the note stated.
Union Bank said its foreign branches had taken the exposures with PNB as counter-party risk via authenticated SWIFT messages. SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. The bank added it had purchased buyers’ credit from Axis Bank through “risk participation” as part of normal global business practice. Axis Bank said on Wednesday it had sold down all transactions which were undertaken against LoUs from PNB.
Kumar said the bank was careful in lending to the gems and jewellery industry and had been taking steps to put in place risk mitigation measures for accounts from the sector. “One of the risk management practices we follow is job rotation. We don’t keep a person for more than three years at one position. There are certain positions which are very sensitive and we monitor those positions very closely”.livemint