So apparently, USA is not the only recent hotspot for scandals (cough Russia cough Trump cough). Nirav Modi is the founder of Nirav Modi global diamond jewelry house which was established in 2010. He is a jeweler to many stars including Naomi Watts and Kate Winslet. But right now, Mr. Nirav Modi has been making headlines in India due to a very different reason. Just last month the Punjab National Bank has reported that Nirav Modi is involved in a 1.8-billion-dollar scam.
How did the scam happen?
It has been reported that Nirav Modi colluded with PNB bank executives to illegally issue Letter of undertakings or LOU. A letter of undertaking simply explained is a service in which a bank guarantees a customer's payment obligation to another bank or you could say a third party. So, if the customer is unable to pay the third party then the bank will have to pay the third party. Somehow some executives in collaboration with associates from companies in control of Nirav Modi, were able to issue the LOU without the knowledge of the bank for the past decade starting in 2011.
Nirav Modi used these LOUs to get loans from banks abroad. Once one of the loans came in default and PNB was asked for the money everything was revealed.
How is it affecting PNB?
It is shocking that this scam only came to light, when PNB had received demand to pay up for a defaulting loan taken with the LOU that were "issued" by PNB. The reality is that this scam could have kept going on endlessly. This has had a very lasting effect on PNB which was already facing troubled times. Just recently in the end of 2017, the Indian government issued a 14-billion-dollar bail-out for state run banks, due to high levels of bad debt (which clearly showed that bail out was not the answer reforming the banks to limit amount of bad debt was). With the recent scandal unfolding PNB shares have already fallen 11 percent. While PNB will see the daylight after this scandal, how much more damage it will have to take is not as easy to determine.
Who is to blame?
Each political party has something to say about this. Congress is trying its best to put all blame on the BJP, with the #From1MODI2another and also continuously pointing out how recent LOU's were issued under the Modi government. The opposition party has been using this scandal as means to further emphasize that, the Modi government is not all that good. This anti-Modi campaign and the scandal has led to theories such as "Chota Modi. Can a connection between both Modis really be formed based on just a mere photo?
Congress president Rahul Gandhi has showcased his opinion regarding the scandal on his twitter page with a "guide to looting India".
However, that is not to say that the BJP has sat quietly and listened. The blame has been thrown both ways. The BJP has also claimed that the "original sin" had been committed by Congress. "Congress indulges in such scandalous affairs, misuses important positions in government, then quietly covers up everything they do. Instead of explaining how it happened during their period, they're casting allegations. Original sin in this episode of Nirav Modi was committed in 2011," senior BJP leader and defense minister Nirmala Sitharaman had said.
What will happen next?
So, it is fair to say that a huge fraud has taken place in the Indian banking sector. Whether it was the fault of one party or another or whether none of them were involved is to be found out eventually. But right now, pointing fingers is not the answer to the problem. Nirav Modi is sitting abroad while eating up all the spoils. Getting him and his associates back in India to be fairly tried should be the top priority. Followed by a detailed investigation into how exactly this happened. And last but certainly not the least the government must help reform these banks to avoid any future bailouts or scams.