Indian banks could take a hit of more than $3 billion (more than Rs 19,000 crore) from loans and corporate guarantees provided to diamond companies at the centre of a massive alleged fraud at the state-run Punjab National Bank, the tax department has estimated.

Special Correspondent

As of March 2017, banks had extended loans and guarantees worth Rs 17,632 crore($2.74 billion) to companies tied to billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the tax department said in a note seen by Reuters.

Since then, the loans and guarantees would have increased over the past year and the total “hit” to Indian banks “may well exceed” $3 billion, according to an internal note prepared by the tax authority on its preliminary investigation into India’s biggest bank fraud case.

None of these letters of undertaking - essentially credit guarantees - were recorded on the bank’s internal software system and instead were transmitted through the SWIFT interbank messaging system, “thus avoiding early detection of fraudulent activity”, the tax note said.

It said that Choksi’s Geetanjali Gems and its subsidiaries led by Choksi dealt with 32 banks. Among those that offered credit to Choksi and Modi, famous for his chain of stores stretching from New York to Beijing, were the Union Bank of India, Allahabad Bank and Axis Bank, the tax note said.

The total loans in the three firms of Modi, Stellar Diamond, Solar Exports and Diamonds “R Us was 39.929 billion rupees, while total capital of the partners was 4 billion rupees, it said.

The Congress on Saturday launched an all-out attack on the NDA government over the alleged multi-crore PNB fraud involving Nirav Modi, saying a scam of such magnitude could not have taken place without "top-level protection", and questioned the prime minister's silence on the issue.

The Congress president asked PM Modi to explain why it had happened and what steps were being taken to ensure the banking system was safe in India.

"The fact of the matter is that the prime minister has, through his actions, destroyed the financial system of this country. He has demonetised the economy. He has taken money from people's pockets and put it into the banking sector and now his friends and cronies are stealing it from the banking sector and the prime minister is not saying anything," he charged.