How did it come to light?
It came to light last month, when representatives of Modi’s companies approached PNB for a fresh loan, PNB said in its complaint, the details of which have been made public.

By then, Shetty had retired and his successor declined to honor Modi’s request.“At this, the firms contested that they have been availing this facility in the past also but the branch records did not reveal details of any such facility,” PNB said in the complaint. This was when it discovered the fake letters of undertaking and filed an initial complaint alleging a $44 million fraud. Two weeks later, it filed another complaint covering transactions worth about $1.8 billion, according to people familiar with the matter.

Who bears the brunt?
PNB is in talks with other banks and liabilities will be decided after the probe, PNB Chief Executive Officer Sunil Mehta told reporters on Thursday. He added that PNB will follow the regulator’s instructions on repayment.

The Reserve Bank of India hasn’t responded to emails seeking comment and hasn’t publicly commented on the case.

PNB has alleged that the money was used either to retire import bills or replenish maturing lines of credit with some other banks, according to the document seen by Bloomberg. In its public complaint, PNB names the Hong Kong branches of Axis Bank Ltd. and Allahabad Bank as the overseas counterparties.

Allahabad Bank has exposure of about 40 billion rupees while Axis Bank has a roughly 30 billion rupee exposure, a person familiar with the matter told reporters in New Delhi. Union Bank has about 20 billion rupee exposure with rest accounted to State Bank of India, the person said, asking not to be named as the information isn’t public.

“Allahabad Bank has raised claims of two tranches of $26 million each from Punjab National Bank for underwriting the letter of credit,” the Mint newspaper reported citing Usha Ananthasubramanian, managing director at Allahabad Bank. “We want the bank to pay up as the exposure is on PNB.”

Axis Bank told the exchanges on Thursday that the transactions were undertaken in the normal course of business and credited to PNB’s nostro accounts. It added it has "sold down all of the referred transactions.”

What next?
India’s government has asked all banks to send reports involving this case or other such incidents latest by the end of this week, the Press Trust of India reported.

The banking bureaucrat Kumar told BloombergQuint that the case is an isolated one. About 10 PNB employees have been suspended pending the CBI investigation, he said. He didn’t name any of the accused.