India bank fraud fallout spreads to trade finance market

Bloomberg

The fallout from India’s biggest banking fraud is spreading to the market for trade financing, as foreign lenders become more reluctant to accept the guarantees from their local counterparts that underpin the loans.
Citigroup Inc., Deutsche Bank AG, Standard Chartered Plc and HSBC Holdings Plc are among banks reducing exposure to these transactions, used by smaller companies to access short-term dollar funding, said people with knowledge of the matter. As questions are raised about the creditworthiness of guarantees from Indian state-run banks, rates have risen by as much as 0.5 percentage point for some types of financing, the people said, asking not to be identified as the details are private.
Foreign banks’ reaction to the $2 billion fraud disclosed by Punjab National Bank two weeks ago, which allegedly involved fake letters of guarantee, is having an impact on financial markets. Signs that trade credit is getting tougher for smaller firms have hurt the rupee, which is among Asia’s worst performers this month and is poised for its first monthly loss since September.
RUPEE DROPS
India runs a trade deficit, which means it needs a constant supply of dollars.
These come through foreign funds’ purchases of Indian stocks and bonds, local exporters’ sale of foreign-currency earnings and dollar loans from foreign banks. India is one of the world’s biggest users of trade funding worldwide, according to the ICC Global Survey 2017.

Jeweller files for bankruptcy
Bloomberg

The international jewellery business that’s part of the empire controlled by Nirav Modi, a billionaire accused of masterminding India’s biggest bank fraud, has filed for bankruptcy in the US just as the Indian lender at the heart of the scam revised up its fraud estimate. Firestar Diamond Inc. blamed liquidity and supply chain challenges and listed up to $100 million in assets and debt, according to Chapter 11 documents filed in a bankruptcy court in New York. Back in India, Punjab National Bank told the stock exchanges that the fraudulent transactions could be $204 million more than the previously estimated $1.8 billion.
Firestar isn’t linked to the complaints filed by authorities, the company said in a February 5 email sent through an external spokeswoman. US representatives for the companies didn’t respond to a message seeking comment. The Indian banks who’ve reported exposure to the fraud didn’t reply to emails sent on Tuesday in Mumbai. Modi, a jeweler who’s dressed actresses including Kate Winslet and Priyanka Chopra, has been accused along with Mehul Choksi of defrauding PNB.