Nirav Modi - the scammer who looted PNB

The Jewel Thief: Analysing the PNB Scam by Nirav Modi & Co.


Last week, a shocked India confronted a gigantic banking scam, unprecedented in terms of magnitude and methods employed. A big comprador and crony capitalist, Nirav Modi, who owns a large chain of designer diamond jewellery business throughout the world, along with his partners, duped the second-largest public sector bank of India, Punjab National Bank (PNB), and stole ₹11,400 crore or $1.8 billion by using forged “Letter of Understanding” (LoUs) issued by a branch of the bank in Mumbai. These forged LoUs helped them acquire credit from the overseas branches of Indian banks.

Though according to the complaint filed by PNB, the amount of the fraud devolved till date is ₹11,400 crore in terms of losses and liabilities to the PNB. The PNB’s total market capitalisation is ₹35,500 crore and the loss will amount to one third of this, which has a potential to cripple the bank and hammer the economy of the country off the track, as either the government will have to disinvest the bank, putting at stake the security of the people’s money deposited in it or recapitalise it using money from public exchequer to bail it out from the crisis. This will certainly increase the budget deficit and thereby affect the economy severely.

According to the PNB management, the fraud started in 2011, i.e. a year after Nirav Modi launched his eponymous brand using money borrowed from other banks. It’s not clear that what made the PNB management to authorise the LoUs to such a new entity within a year of its establishment. In the meantime, while stressing on the part that the scam started in “2011”, the PNB head tried to protect the Modi government from the accusation of helping the big-ticket money launderer and his family to safely escape from India despite receiving the complaint against him way back in June 2016. The whistleblowers, who blew the lid off the scam and gave the government a view of the tip of the iceberg are living in constant fear as a threat to their life looms large.

The PNB head kept reiterating that the bank has requested for a thorough investigation and the CBI, ED and other branches of financial crime are working together to trace the accused and also seize the assets at his Indian showrooms. However, there has been no proper clarification on the loopholes in issuing the LoUs by the PNB, rather the PNB authorities are spending their energy and efforts, visibly under pressure from the Modi government, to shift the ball to the court of the Congress. However, to understand at whose court the buck stops, we need to see who all have been foul playing in the Nirav Modi scam.

The LoUs are issued by banks to their big-ticket customers so that they can avail credit from Indian banks at off-shore locations and the bank that issues the LoUs actually takes the responsibility of paying back the loan amount. Now, a branch of the PNB can issue a maximum of ₹100 crore through LoUs only when the financial credentials of the entity seeking it is sound and has the potential to pay back. However, for any account that asks for LoUs above ₹100 crore or has already got more than ₹100 crore issued through LoUs, then the approval of the bank’s board of directors and top management is mandatory in each case.

PNB’s board of directors and top management are denying that they had any role to play in this scam while blaming the junior staffs at the branch and regional level for dodging the accounts. The PNB top management is actually deceiving the people into believing that any amount of big financial irregularity is possible without their knowledge in the very bank, which has stringent audit processes in place to prevent leakage through malpractices.

It’s not only the PNB, rather each bank of the country goes through a plethora of audits every year to comply with industry standards and rules, including proper and flawless accounting practices. If the PNB authorities are to be believed, then all these audits since 2011 failed to trace the existence of such a big discrepancy in the book of accounts because most banks from whom Nirav Modi and Mehul Choksia took credit using the LoUs must have asked for their due money from the PNB.

Even if we assume that the LoUs were forged, then an alarm was supposed to trigger somewhere because forging such documents amount to a criminal offence. However, no one knew about the scam taking place since the last six years, if anyone believes the PNB authorities, the very authorities of the bank that won awards on vigilance at a time when a fraudster was robbing it in daylight, brick by brick.

Another big concern right now is how many other banks are affected by this fraud? Is PNB the only Indian public sector bank that Nirav Modi targeted? As per the reports, the department of financial services under the Finance Ministry of Modi government has ordered all other public sector banks to review their LoUs and account books to find out any similar trend of forgery. Banks like Allahabad Bank, Axis Bank and Union Bank are alleged to have issued a huge amount of credit to Nirav Modi and his accomplices on the basis of the LoUs issued by the PNB. It’s imperative to know whether any of these banks also issued LoUs or other credit guarantees to Nirav Modi and others.

The implications of this mammoth scam on the Indian economy will be catastrophic, especially at a time when the government’s efforts to offer stimulus to the PSU banks to catapult themselves out from the burden of severe NPAs caused by big-ticket bad loans given to corporate houses are going astray. The PNB scam has provided the Modi government two benefits, one, it’s using the scam to train guns at the erstwhile Congress government; two, it will use the loss to the public exchequer as a pretext to push forward the draconian FRDI bill.

The Financial Resolution and Deposit Insurance (FRDI) bill 2017 will now be pushed by the Modi government and there will be a lot of track-II diplomacy with the opposition parties to have this draconian act passed, which will give a new banking authority the right to convert the savings account of customers into long-term fixed-deposit accounts, without their prior approval, to meet the losses caused by the bad loans, should the said bank suffers from any.

This “bail-in” option will save the government from bank bail-outs, however, it will now put the onus of the risk of the loss suffered by any bank due to the forgery committed by big fraudsters like Nirav Modi or the big corporations defaulting on loan repayments, on the customers. Rather than forcing the banks to follow a judicious lending procedure, the public sector bank customers, the middle-class and the poor, who mostly have accounts with PSU banks that suffer under the burden of huge NPAs, will now have to face the burnt for the wrongdoings of big corporates in connivance with the bank authorities.

Nirav Modi is not an exception; this gigantic fraud is a part of the mainstream of Indian and international corporate affairs, where capitalists dupe the people by robbing their money. The connivance of the Modi government in such a scam, about which the PMO was alerted in 2016, can’t be easily ruled out.

It’s not that this was the only wrongdoing of Nirav Modi and his coterie, in 2015, the Directorate of Revenue Intelligence (DRI) raided his diamond jewellery designing unit in Sachin SEZ of Gujarat, the state where most of the crony capitalists of the modern period strengthened their finances by plundering the public exchequer under the patronage of the BJP government since 1995. The raid revealed that by involving in round-tripping of diamonds to benefit from government schemes, the firm of Nirav Modi cheated the government of ₹900 crore. A mere ₹37 crore fine was slapped on Nirav Modi and he obliged by paying ₹48 crore including all penalties.

Despite Nirav Modi’s name getting listed in one scam after another, the ruling BJP at the centre and in states like Gujarat and Maharashtra, where his business and factories flourished, remained unapologetic about their nexus with this scammer until recently as he remained consistent in funding the Hindutva fascist bloc.

The maternal uncle of Nirav Modi, Mehul Choksi, who has substantial ownership in firms like Gitanjali Gems, Nakshatra Brands and Gili India, was even invited to a programme at the Prime Minister’s Office in November 2015, where Narendra Modi addressed him in the customary Gujarati style – “Mehulbhai” praising him for his remarkable business in jewellery.

Nirav Modi was a member of the CII delegation that went with Narendra Modi to Davos for the World Economic Forum meet and was present in the group photograph with the prime minister at a time when PNB was trying to get hold of him and recover the money he stole from the bank.

Though the BJP and the Modi government are now involved in gross mendacity to deny their surreptitious alliance with Nirav Modi to fight the nation-wide opprobrium by the opposition parties and the democracy-loving people, they aren’t able to show that their party or the Modi government didn’t play any role in enriching the fortune of Nirav Modi, Mehul Choksi and several other key players of the scam, and this “Junior Modi” didn’t get any help from the ruling party or its regime to flee the claws of the law. Except for rhetoric and mudslinging, the BJP has nothing substantial to show itself in brighter shades.

The PSU banks will face a big crisis due to a loss of such magnitude and it’s evident that either through a bail-out plan or the enactment of the FRDI bill, the Modi government will use the people’s money to make-up for the loss caused by the greedy crony capitalists like Nirav Modi.

Though the mainstream media is showing that the government agencies have seized jewellery worth ₹5,100 crore by raiding Nirav Modi’s showrooms and outlets, it cannot be considered as the recovery of the loss amount as these jewellery items will need to go through a prolonged and complicated judicial battle to be considered as a mean to achieve the end of minimising the losses caused to the PSU bank. Still, the gross loss will be around ₹6,200 crore.

The Modi government’s flagrant corporate appeasement resulted in big fishes like Lalit Modi, Vijay Mallya, Nirav Modi and Mehul Choksi fleeing India with utmost ease after duping the banks and tax authorities millions of dollars. The same government overlooks the plight of the debt-ridden farmers of India, who are either killed by banks for failing to repay a single instalment for their tractor or they kill themselves to evade the incessant harassment by the collection executives and local moneylenders. It’s the farmers who are wooed with hollow promises and magnified claims during elections, however, it’s the comprador and the crony capitalists who are allowed to plunder the money, resources and labour of India without any restriction by the mainstream political parties after the elections are over.

Once more, Nirav Modi isn’t an exception or deviation but in Narendra Modi’s Modi-fied India, where the corporate capital has established its unapologetic dictatorship, this man and his cohorts are the mainstream. Stealing people’s money and dodging taxes are the inherent rights granted to the big corporate houses, while small and medium enterprises are reeling under the brutal regime of GST and the bullying by corrupt taxmen.

The corporate world, drooling to intensify their plunder of India are audaciously using the context of Nirav Modi’s scam to demand privatisation of the PSU banks so that all crooks of the corporate world can have their share of the pie, built with the money of the poor and the middle-class. This sorry state of affair will, unfortunately, grow under the rule of Narendra Modi, the senior Modi who was chosen by the global and domestic corporate overlords to rule India and turn it into a haven for their loot.

Unless Narendra Modi and his Hindutva fascist fanatic brethren are sent to political exile, India will suffer serious wounds inflicted upon its economy by big comprador and crony capitalists like Nirav Modi and Mehul Choksi.

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An avid reader and a merciless political analyst. When not writing then either reading something, debating something or sipping espresso with a dash of cream. Street photographer. Tweets as @la_muckraker

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