NEWS
20/02/2018 9:42 AM IST | Updated 20/02/2018 9:56 AM IST

CBI Arrests Three More PNB Executives In $1.8 Billion Fraud Probe

The finance ministry pointed a finger at the Reserve Bank of India for failing to pick up the fraud.

AFP/Getty Images
An Indian supporters of the Congress Party keeps his hand on the face of a cut out of billionaire jeweler Nirav Modi during a protest in New Delhi on February 16, 2018.

NEW DELHI/MUMBAI - The Central Bureau of Investigation arrested three more employees of Punjab National Bank on Monday over a $1.77 billion loan fraud, and the government said the scandal exposed a supervisory failure by the country's central bank, police and local media reports said.

Police have said that two previously arrested bank employees colluded with billionaire jeweller Nirav Modi and his uncle to issue fraudulent letters of guarantee, which the businessmen used to raise loans from overseas Indian banks over a seven year period.

Two officers looking after the foreign exchange department of the state-run bank and another who was responsible for checking communications on the SWIFT messaging platform were picked up in the latest swoop by the Central Bureau of Investigation.

The three officials - who the police accuses of supervisory lapses - are slightly more senior than the two PNB employees who were arrested by police and taken before a court over the weekend.

The arrests came as the ripples from India's biggest banking scam continued on Monday. The finance ministry pointed a finger at the Reserve Bank of India for failing to pick up the fraud, which took place at a single branch of PNB in Mumbai, according to local media.

The government has written a letter to the RBI, India's central bank, saying the failure to detect the fraud raised questions about its "efficacy of supervision to detect and check systemic failure", financial news provider NewsRise and other local media reported.

"Either the framework designed by RBI to prevent and detect such frauds is inadequate or RBI is unable to ensure its effective implementation," they quoted the letter as saying.

The RBI did not immediately respond to a request for comment on Monday, which was a holiday in Mumbai. A finance ministry spokesman declined comment.

Rajeev Kumar, the top government bureaucrat overseeing banks, told Reuters in New Delhi the finance ministry had written to the country's banks to take effective steps to avoid a repeat of a PNB-like fraud. Kumar declined to comment if the government had written to the RBI.

The three bank officials arrested on Monday were Bechhu Tiwari, a chief manager in charge of the foreign exchange department; Yashwant Joshi, a manager in the same department; and Praful Sawant, another bank officer, according to a source at the Central Bureau of Investigation (CBI). The executives were not immediately available for comments.

Police have also issued look out-notices for Nirav Modi and for Mehul Choksi, who heads jewellery retailer Gitanjali Gems Ltd and other companies, both of whom are overseas.

One of Modi's employees was arrested over the weekend and on Monday CBI agents carried out another search of the bank branch to gather evidence, the CBI source said.

Modi, who counts Hollywood stars such as Kate Winslet and Dakota Johnson among his clients, has not commented on the allegations. Police have said he and his family left India before PNB filed a complaint on the alleged fraud.

Choksi has also not commented, and police have said he also left India last month.

Also on HuffPost India:

Bend It Like Our Netas

More On This Topic