PNB scam: Bank ignored auditors' warning

The banks also received a warning from the rating agency Care, in February 2016, after Firestar's financials deteriorated.
Dev Chatterjee reports.

Photograph: Rupak De Chowdhuri/Reuters

Indian lenders led by the Punjab National Bank ignored warnings from the auditor of Gitanjali Gems in March 2017 that the latter has defaulted on Life Insurance Corporation loans.

According to Ford, Rhodes and Parks LLP, the auditor of the BSE-listed Gitanjali Gems, the company defaulted to LIC for the year ending March 2017 and drew the attention of shareholders to 12 per cent non-convertible debentures issued to LIC where the company had not paid principal and interest dues of Rs 3.5 crore.

'Further, the company has not created liquid assets of Rs 1.5 crore as per rules,' the auditor pointed out.

Besides, there were overdues to be paid to ICICI Bank and IDBI Bank in foreign currency.

Principal of $8.75 million (Rs 56.74 crore) and interest of $0.97 million (Rs 6.32 crore) to ICICI ECB and principal of $0.73 million (Rs 4.77 crore) and to IDBI ECB was overdue, as per the auditor report.

The company had consolidated debt of Rs 8,250 crore as on March 2017.

Further, the auditor report pointed out that the company's overdrawn position in the working capital borrowings aggregated to Rs 31.15 crore as compared to its sanctioned limit.

The audit report was signed by chartered accountant A D Shenoy.

When contacted, Shenoy did not comment on the issue, but said all the relevant information is in the public domain.

Gitanjali shares were down 62 per cent to Rs 22.45 as on Tuesday and have lost Rs 460 crore of value since the scam broke out.

On the other hand, Deloitte, the auditor of the Nirav Modi-owned Firestar International Pvt Ltd, had also raised flags in March 2016, but the audit report failed to detect any large scale fraud in the company till March 2017.

Deloitte was the auditor of two Modi companies that are currently under investigation by various government agencies.

Deloitte was FIPL's auditor for two years and signed off the accounts for fiscal ending March 2016 and fiscal ending March 2017.

The firm continues to be the auditor to both Nirav Modi firms till date.

Interestingly, the banks also received a warning from the rating agency, Care in February 2016 after Firestar's financial metrics deteriorated.

In a statement on February 1, 2016, Care had warned clearly that FIPL was operating on stretched operating cycle till March 2015 which has led to working capital bank facilities fully utilised at a time its operational performance was on a decline.

Care then downgraded the company's debt instruments worth Rs 2,460 crore.

Care also warned about Firestar Diamonds Ltd, a subsidiary based in Hong Kong, saying the company may not be able to repay its loans unless its parent company steps in as a guarantor.

Firestar Diamond -- its American subsidiary -- has now filed for bankruptcy.

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