Letters of credit (L/Cs) are embroiled in the massive bank fraud in the Indian diamond sector that was revealed last week when Punjab National Bank (PNB) said it had fallen victim to what is at least a US$1.7 billion scam linked to celebrity jeweller Nirav Modi (DC World News, 16 February 2018).

India's state-owned UCO Bank said in a filing on Saturday to the Bombay Stock Exchange (BSE) that its Hong Kong branch granted loans against L/Cs issued by PNB.

Other banks, including State Bank of India and Union Bank of India, have also reportedly suffered losses.

Mounting losses

The Reuters news agency says it has been told by tax officials that Indian banks may have lost as much as US$3 billion in credit extended and corporate guarantees provided to diamond companies allegedly involved in the PNB fraud.

Modi has not spoken publicly about the allegations. He is believed to be in New York and his Indian passport has been revoked according to the Times of India.

More fraud suspected

Bombay listed company PC Jeweller meanwhile has issued a statement clarifying that it has properly disclosed all of its financial dealings and made a specific point of saying it does not use L/Cs or letters of undertaking in its business at all.

The company was responding to a sharp fall in share value, which may have been precipitated by concerns that fraud in the diamond sector reaches beyond the Nirav Modi case.

"The company does not have any international transactions in diamonds, it procures all its diamonds from local markets on a cash basis only," PC Jeweller said in a statement.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.