Former PNB deputy manager Gokulnath Shetty has confessed before the ED that he issued the first LoU to Nirav Modi in 2010 and that since then all LoUs worth Rs 13,700 crore were issued by him. However, he blamed Rajesh Jindal, who was GM of PNB's Brady House branch between August 2009 and May 2011, for directing the fraud, and prime accused Nirav Modi and his partner Mehul Chokshi for blackmailing him from 2010 to 2017, confirmed ED sources.
Shetty was arrested on April 5 by the Enforcement Directorate after the Prevention of Money Laundering Act (PMLA) court on April 3 approved the CBI's plea for his custody in connection with the PNB fraud case.
In his statement, Shetty admitted that though he was the one who issued all the LoUs, he didn't take benefit out of it. He said Rajesh Jindal, who was then GM at Brady House branch, directed him to issue first LoU (Letter of Credit) to Nirav Modi without securities and collaterals.
According to ED sources, both businessmen had allegedly blackmailed him after his first misconduct. He said he feared that Modi and Choksi would blackmail him further, which is why he kept issuing the LoUs from 2010 to 2017.
During the questioning, Shetty also alleged he feared he might lose his job as they both threatened to expose him by making public all LoUs he issued without any collaterals and securities.
Shetty didn't name anyone for wrongdoing except himself, saying he takes the entire responsibility for violating banking rules and issuing LoUs, said sources. He said none of his junior employees were aware about the fraud. Now the Enforcement Directorate (ED) is corroborating his statements and examining if he bought any properties out of the proceeds of crimes.
Shetty also explained to the officials how he issued the LoUs and misused the PNB's core banking solution to perpetrate the crime. The ED custody of Gokulnath Shetty will end on Wednesday. The agency may seek more time to question him further on the issue and would seek his judicial custody.
Rajesh Jindal, General Manager Credit at PNB's head office in New Delhi, was arrested by Central Bureau of Investigation (CBI) on February 21. He was head of the Brady House branch in Mumbai from August 2009 to May 2011. It was during his tenure that Shetty started issuing the LoUs to the Nirav Modi Group of companies.
PNB detected the fraud at its Brady House branch in Mumbai on Febraury 4. Nirav Modi and Mehul Choksi, allegedly in connivance with several PNB officials, defrauded the bank of several thousand crore of rupees. These PNB officials fraudulently issued LoUs and LoCs on behalf of several companies belonging to the duo for availing buyers' credit from overseas branches of Indian banks. None of the transactions were routed through the CBS (Core Banking Solution) system, thus avoiding early detection of fraudulent activity.