“Sir, these Letters of Undertakings (LoUs) don’t match our system entries…”
The junior bank officer stared at his computer screen, unsure whether he’d made a mistake or uncovered something massive.
This is how the biggest scam in Indian banking history came to light, not with a bang, but with a small doubt.
Back in 2018, something strange was going on inside Punjab National Bank (PNB).
Two well-known businessmen, Nirav Modi, a flashy diamond jeweller, and his uncle Mehul Choksi, who ran a big jewellery empire, were quietly taking money from the bank. Not small amounts. Thousands of crores.
And it wasn’t by robbing a bank like in the movies.
They used a trick most people hadn’t even heard of — something called a Letter of Undertaking, or LoU.
What Is a Letter of Undertaking?
It’s basically a promise. When an Indian bank gives you a LoU, it’s telling another foreign bank:
“Hey, this person is trustworthy. Give them a loan, we’ll make sure it’s paid back.”
Simple, right?
Now here’s the twist: Nirav Modi and Mehul Choksi were getting fake LoUs issued. With the help of some corrupt PNB officials, they bypassed the normal system, and these LoUs weren’t even recorded in the bank’s main computer system.
“They just kept borrowing more and more. But nothing was being repaid. And no one noticed,” said a former banker involved in the case.
From 2011 to 2018, they quietly kept the money flowing.
The Scam Blows Up
One fine day in January 2018, a junior employee flagged something suspicious.
When senior officials looked into it, they were shocked. PNB had given guarantees worth ₹13,578 crore, and most of it was already gone.
The bank immediately reported it to the CBI, and soon the news exploded across every media channel.
But by then? Nirav Modi and Mehul Choksi were already out of the country.
“They vanished just days before we filed the official complaint,” an official later revealed.
“It’s like they knew it was coming.”
Where Did They Go?
Nirav Modi flew to Europe, finally landing in London. He continued living in a posh apartment and was even spotted walking around the city as if nothing had happened.
Choksi? He had already become a citizen of Antigua and Barbuda in 2017, a full year before the scam was even exposed. Smart move, right?
That made it difficult for Indian authorities to bring them back. Both were now fighting legal transfer, trying every trick in the book to avoid returning to India.
But the Law Caught Up
In 2019, Nirav Modi was arrested in the UK. He’s still in jail there, and Indian authorities are trying to get him back.
After years of being on the run, Mehul Choksi was finally caught in Belgium, in the city of Antwerp.
He had been living there quietly, saying he needed medical treatment.
But Indian authorities didn’t give up, they kept pushing for his return.
And now, they’ve managed to get him arrested. Choksi’s lawyer says he’s not well and that the case is politically motivated, so they’re planning to fight the arrest in court.
Still, for the first time in a long while, it looks like he might actually be brought back to India to face justice.
Slowly, justice is catching up.
Why Did This Happen?
This scam didn’t happen because of technology or hacking. It happened because of trust, blind trust.
Bank officials didn’t follow the rules. Audits were not strong. And rich businessmen with influence were allowed to bend the system.
“This wasn’t just a scam. It was a failure of the entire system,” a retired RBI officer once said.
After the scam, the RBI banned LoUs, and banks were told to tighten their internal controls.
But the damage was already done, not just to PNB, but to the trust of common people in banks.
When Billionaires Scam, the Common Man Pays the Price
When the rich get away with scams, it’s everyday people who suffer the most.
The effects of big scams like the Nirav Modi case reach far beyond the wealthy; ordinary people end up dealing with the consequences in their daily lives.
- Loss of Trust in Banks: Every day, people start questioning the safety of their savings when high-profile scams like this happen in nationalized banks.
- Taxpayer Burden: The government may use taxpayer money to bail out banks or cover their losses, meaning common citizens unknowingly pay for the mistakes of others.
- Stricter Financial Regulations: In response to scams, the government and the RBI tighten rules, making it harder for genuine businesses and individuals to access loans and financial support.
- Rising Costs: As banks recover from fraud, there may be increased interest rates, service fees, and stricter approval processes, directly impacting consumers.
- Damage to India’s Global Image: Such scams hurt India’s reputation in the global financial market, slowing down foreign investments and job growth that could have benefited the common person.
Final Thoughts
The PNB scam is a lesson. A reminder that even the biggest systems can be fooled if people stop asking questions.
Nirav Modi and Mehul Choksi lived like kings, with private jets, watches worth crores, and celebrity parties. But behind the scenes, they were building a house of cards.
Today, that house has fallen.
And the diamonds?
Well, most of them weren’t even real.
