Allahabad Bank’s exposure to Nirav Modi incident at Rs 2,362 cr

Allahabad Bank said it is exposed to the tune of  $366.87 million to the current incident involving diamond merchant Nirav Modi and the unauthorized Letters of Undertakings he allegedly secured from Punjab National Bank.

However, said Allahabad Bank, it is not worried about getting its money back as the loans are guaranteed by PNB.

“The Bank, through our Overseas Branch at Hong Kong has been taking exposure with Punjab National Bank (PNB) as counter party under various Letters of Undertakings (LOU) issued through authenticated SWIFT message,” Allahabad Bank said.

“The Bank has also purchased some Buyers’ Credit assets from Axis Bank extended against PNB LoU through Risk Participation as a part of normal International Business Practice,” it said, adding that the total outstanding exposure “related to the incident” is approximately $366.87 mln.

It said it is confident of getting its money back as it has lent it only on the basis of messages received over the SWIFT mechanism.

SWIFT, or Society for Worldwide Interbank Financial Telecommunication, provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.

The commitments given over SWIFT are considered legally binding, irrespective of which employee of the bank gave the commitment. It is up to the bank to ensure that only qualified employees can send messages over SWIFT.

“The Bank is fully secured by LoU documents and fully confident to receive the payment,” pointed out Allahabad Bank in its official comments on the incident.

Modi, an international jeweller, is accused of persuading an employee of Punjab National Bank to send SWIFT messages and letters of credit to enable him to take loans that run into around $1.77 billion, for which PNB is now on the hook for.

PNB has said that it will honor the Letters of Credit if it is legally found to be required to do so.

Allahabad Bank has also been in the news as a former director of the bank said he was forced to step down by a senior finance ministry official after he raised questions about a Rs 1,500 cr loan by the bank to one of the businessmen in the thick of the controversy.