February 28, 2018 / 2:19 PM / in 6 months

India federal police arrest auditor at PNB as investigation widens

NEW DELHI (Reuters) - India’s federal police on Wednesday arrested an auditor of a Punjab National Bank (PNBK.NS) branch at the center of an alleged $2 billion fraud, a police spokesman said, bringing the number of bank employees held to seven as the investigation widens.

The Central Bureau of Investigation (CBI), however, has yet to track down billionaire jeweler Nirav Modi and his uncle Mehul Choksi, whose firms are accused of securing unauthorized loans using fraudulent letters of undertaking from India’s second-biggest state lender.

Modi and Choksi left India in January before the fraud came to light. They have said in letters and statements that they are innocent.

CBI said the arrested auditor, M.K. Sharma, was “allegedly responsible for auditing the systems and practices” of Punjab National Bank’s (PNB) Brady House branch in Mumbai and for reporting any problems to the zonal audit office.

Sharma will appear in a Mumbai court on Thursday, the spokesman added. Sharma could not immediately be reached for comment.

The agency earlier on Wednesday said that they have sent an email to Modi asking him to join the investigation by next week. It has already stepped up questioning of various present and past officials of PNB.

So far it has arrested at least 13 people - seven from the bank and six more from Modi and Choksi’s companies. Investigators have also seized a number of properties from the two, including jewelry and luxury vehicles.

Modi and Choksi, owner of Gitanjali Gems Ltd (GTGM.NS), are suspected of colluding with bank officials at PNB to obtain unauthorized loans over a six-year period starting in 2011.

The scale of the fraud has raised concerns about the potential for similar cases across India’s banking sector. India’s Finance Ministry on Tuesday set a 15-day deadline for state banks to take action to improve their oversight of operational and technological risks.

Reporting by Krishna N. Das and Nigam Prusty; Editing by Hugh Lawson

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