The Punjab National Bank has increased its dollar purchase to pay back the overseas lenders who issued credit to billionaire jewellers Nirav Modi and Mehul Choksi against the Letters of Undertaking issued - fraudulently - by the state-run bank.
The Economic Times today reported that the PNB has emerged as a major institutional buyer of dollars as it prepares to pay off the dues to overseas bank branches. A banker who spoke to the business daily said: "PNB has been buying dollars and will continue to do so as and when these LoUs come up for maturity as the bank has to pay off in foreign currency."
The report referred to a data from Clearing Corp of India which showed that on March 28, dollar purchases reached as high as USD 122 billion as opposed to USD 20-30 billion on usual days.
Last month, the state-run bank announced that it would honour LoUs issued fraudulently to lenders in favour of Nirav Modi and Mehul Choksi. In a statement, the bank said: "The decision was taken by the board for the payment related to Letters of Undertaking and Foreign Letters of Credit issued by the bank which mature on or before March 31, 2018." This will lead to settling of LoUs worth Rs 6,500 crore with 7 banks in relation to the recent fraud that was reported by the bank, It added.
The move was the departure from PNB's earlier stand where it clearly stated that the bank would honour only bona fide commitments. PNB MD and CEO Sunil Mehta in a press conference had said: "We will honour all our bona fide commitments under LoUs and FLCs as per law of the land and as per specific existing guidelines of regulator i.e. RBI on LOUs and FLCs." He also added that 'if the investigation process says it is our liability, then we will accept it'.
Earlier, the Finance Ministry informed the Parliament that the state-run PNB had issued a total 41,178 LoUs since 2011. Out of these, as many as 1,590 were given to Nirav Modi, Mehul Choksi and their associates.
Among the banks which have exposure to mega PNB fraud are: SBI, UCO Bank, Allahabad Bank, Union Bank of India and Bank of Baroda. UCO Bank has the highest exposure of about Rs 2,635 crore followed by Allahabad Bank which has an exposure of Rs 2,400 crore. UBI is at third place with Rs 1,920 crore. The SBI has an indirect exposure of about Rs 1,360 crore and Bank of Baroda has the least exposure of about Rs 425-450 crore.
The PNB in its latest statement reiterated that after the fraud was detected, the bank had communicated that it has a strong balance sheet to meet any contingent liabilities upon the bank.
After the board meeting decision on LoUs payments, the PNB chairman said: "In essence, PNB stood by its commitment to honour all bonafide LoUs. This decision of the board sends out a strong message that PNB takes its obligations seriously but does it in a manner that is compliant with the law."
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