PNB honoured LoUs worth $1.9 billion in Nirav Modi scam, says Chairman Sunil Mehta

Punjab National Bank has honoured letters of undertaking (LoUs) worth $1.9 billion by far out of those issued in favour of Nirav Modi and Mehul Choksi, bank's non-executive chairman Sunil Mehta was quoted in a Financial Express report. LoUs worth Rs 6,500 crore had matured by the end of March and have been paid, Mehta added.

The LoUs maturing in April have been honoured while the remaining ones will be honoured on maturity, the report said. In total, $1.9 billion has been paid out of $2.07 billion, Mehta was quoted in the report.

There are quite a lot of LoUs issued in the favour of absconding diamantaires Nirav Modi and Mehul Choksi and the bank will have to go back several years to make sure that all of them are reconciled. "We also wanted to make sure whatever they had done there was prima facie kosher so that at least we were not violating any local regulations by honouring those," Mehta said.

LoUs have been banned by the Reserve Bank of India after they were used by Modi and Choksi to dupe PNB of more than Rs 13,000 crore. They were a provision of bank guarantee under which a bank allows its customer to get a short-term credit from the foreign branch of other Indian banks. Under LoU, the issuer bank is obliged to pay back the lender if the borrower fails to do so.

PNB has also started linking its SWIFT system with its core banking system and will complete the process by April 30. "The way you do it is on a module-by-module basis; so we started the whole process soon after and we have committed that it will be complete by April 30. Every module has to be retested to validate that the module is working and that process is underway," Mehta said.

Modi and his uncle Choksi allegedly cheated PNB of over Rs 13,000 crore through fraudulent Letters of Undertaking (LoUs) in connivance with certain bank officials. A Mumbai branch of PNB had fraudulently issued LoUs for the group of companies belonging to Nirav Modi since March 2011. Recent reports suggest that Modi is presently hiding in the United States.