PNB fraud: 107 firms, 7 LLPs under SFIO scanner

“The government has ordered investigation into the affairs of 107 companies and 7 LLPs under the provisions of Section 212(1)(c) of the Companies Act, 2013 and Section 43(3)(c)(i) of Limited Liability Partnership Act, 2008 on 17.02.2018 belonging to Nirav Modi (Firestar Diamond group) and Mehul Choksi (Gitanjali Group) to be carried out by the Serious Fraud Investigation Office connected with Punjab National Bank Fraud wherein all matters in their entirety will be examined,” Minister of State for Corporate and Law & Justice, PP Chaudhary said. 

The investigation is under progress, he informed. On March 7, continuing the probe into the PNB fraud, sleuths of the SFIO questioned the bank’s Managing Director and CEO Sunil Mehta for five hours. The SFIO had also summoned top executives of ICICI Bank and Axis Bank for questioning into this matter.

Credit cost to rise as LoUs issuance discontinued: 

The RBI’s decision to discontinue the Letters of Undertaking (LoUs) or Letters of Comfort (LoC) might increase the credit cost for imports as it will lead to a shift towards “other off-balance sheet” products, said a State Bank of India (SBI) report on Friday. 

According to SBI Ecowrap report, the shift to “other off-balance sheet” products will be “administratively time consuming” and in the short-term might impact export funding as well. On March 13, RBI decided to discontinue the system in the  wake of the Rs 12,600 crore fraud at the  state-run PNB. 

“Banning LoUs/ LoCs might lead to shifting to other off balance sheet products - LCs, Bank Guarantees, other fund based facilities or on to balance sheet,” the SBI Ecowrap report said. 

“We, however, believe the shift to other off balance sheet products if occurs, will be administratively time consuming. However capital charge may vary for different products leading to changes in capital requirements  in either direction depending on the product used and associated risk.” 

Earlier, banks were permitted to issue guarantee/LoU/LoC in favour of overseas supplier, bank or financial institution up to $20 million per import transaction under the automatic route for a maximum period up to one year in case of import of non-capital goods. As per the latest available RBI data, guarantees given on behalf of constituents outside India stood at Rs 1.95 lakh crore as on March 31, 2017.