Investigators are looking into allegations that Nirav Modi and his business partner, Mehul Choksi, were involved in defrauding the country's second-largest state-run lender, Punjab National Bank (PNB), of 2.8 billion rupees (RM170 million).
The police also arrested a third person, Hemant Bhat, whom the source described as the "authorised signatory" of the companies tied to Nirav Modi, the billionaire jeweller also believed to be at the centre of the fraud.
Authorities also interrogated the owner of the shop (Gitanjali Gems are a franchise) Vijay Singh and three other officials of the shop, all of them were said to be cooperating with the investigation.
"The PSU banks, ironically, are slipping from one crisis to the other and there is a limit the government can keep bailing them out at the cost of taxpayers' money, even if it is the principal shareholder in these lenders", Assocham said.
UCO Bank's Hong Kong branch granted loans against letters of credit issued by PNB, UCO Bank said in a filing with the Bombay Stock Exchange late on Saturday. Shetty in conspiracy with Kharat fraudulently issued LoUs without sanction and without having the powers to do so and thereby abused his official position as a public servant.
He also said nearly 90 per cent of the LoUs had been given during the Modi government's tenure, according to a leader who was present during the discussion. The ED has seized diamonds, gold jewellery and other precious stones worth Rs5,674 crore till now in the case.
The country's largest lender, SBI, said it has an exposure of Dollars 212 million (about Rs 1,360 crore) in respect to LoU issued by PNB to Nirav Modi, but does not have any direct exposure to the jeweller.
It had also attached 29 properties and 105 bank accounts of Modi, his family members and firms owned by them.
Meanwhile, the agency raided the residences of the PNB officials probing their role in issuing the LoUs to the companies.
A statement by the Congress Steering Committee asked the Prime Minister to apprise the nation of complete facts about the biggest "bank scam" instead of remaining silent "as usual".
However, the tax department has estimated that the banks could take a hit of more than Dollars 3 billion (Around Rs 20,000 Crore) by the PNB bank scam.
India's central bank said it "has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action".