Mehul Choksi, One Of The Two Accused In PNB Scam, Claims Innocence In Open Letter To Employees
February 26th, 2018
Image Credits: Ibn Live
One of the two businessmen allegedly involved in enabling India’s biggest banking scam wrote an open letter to his employees over the weekend claiming innocence and asked them to look for other jobs.
Mehul Choksi, who wrote the letter, and his nephew Nirav Modi are accused of perpetrating the PNB scam, which involves a fraud of at least $1.8 billion.
Choksi’s firm, Gitanjali Gems, has denied involvement in the alleged fraud. In an open letter on Friday, Choksi told employees he did not want anyone to suffer due to an association with him, but that he was in no position to pay their salaries and they were free to look for other opportunities until he could prove himself innocent.
“With recent false allegations levelled against me of defrauding the PNB Bank and media frenzy, the situation has gone grave, which is turning graver by the day,” Choksi was reported by Reuters as having written.
The PNB scam
The Punjab National Bank reported on Wednesday fraudulent transactions worth Rs 11,360 crore from a single branch in Mumbai. The fraud is equal to one-third of PNB’s total market capitalisation (value of the company that is traded on the stock market).
On February 5, the PNB said in a statement that its preliminary investigations showed it has come across a suspected fraud amounting to Rs 280 crore. Later, it was found that it was in connection with fraudulent activities of billionaire jeweller Nirav Modi who was being probed by the federal investigation agency.
India’s banking sector in crisis
Amid the PNB scam, the country’s largest lender, SBI, wrote off bad loans worth Rs 20,339 crore in 2016-17 – the highest among public sector banks which has a collective write off of Rs 81,683 crore for the fiscal.
The figure has jumped almost three times in five years. The huge bad loans have caused SBI to register its first quarterly loss (Rs 2,416.4 crore) in 17 years.
For over three years, the RBI has been struggling to resolve its bad loan problem. In May 2016, former RBI Governor Raghuram Rajan initiated the Asset Quality Review (AQR) through which the RBI had asked the banks to report stressed loans or even non-performing ones (more details here).
It was revealed last year that only 12 accounts are responsible for about 25% of these bad loans. The gross bad debt that plagues India’s banking system as of March 2017 was at Rs 7.11 lakh crore, according to Business Standard. This means that the 12 accounts would be responsible for about Rs 1.78 lakh crore.
In October last year, the Union government unveiled a plan to infuse Rs 2.11 lakh crore into the country’s NPA-swamped public-sector banks (PSBs) over two years to boost credit and spending. This recapitalisation plan includes Rs 80,000 crore worth of recapitalisation bonds for 2017-18 and Rs 8,139 crore as budgetary support.