New Delhi: Punjab National Bank (PNB) on Friday said it will honour all "bonafide" Letter of Undertakings (LoUs), an instrument which was used by billionaire diamantaire Nirav Modi to defraud the bank of Rs 12,968 crore.

The statement was made by top management of the bank at the Extraordinary General Meeting (EGM) which was primarily convened to clear proposal for the capital infusion through issuance preferential shares to the government.

Clarifying on questions of shareholders on the ongoing bank fraud case, PNB reassured its shareholders, customers, partners and employees on the bank's capability and capacity to come out of this situation.

The bank has outlined a multi-pronged agenda to tighten checks and balances in the system and the top management said that they will honour all bonafide LoUs, sources said.

Shareholders of the bank in the EGM approved the issuance of up to 33.49 crore shares of face value of Rs 2 each fully paid at a premium of Rs 161.38 per share amounting to Rs 5,473 crore to the Government of India (GoI) on preferential basis, PNB said in a filing to stock exchanges.

The allotment of these preference shares is likely to increase the government's stake in PNB from 57 per cent to 62.25 per cent.

With regard to strengthening internal control mechanisms, sources said frequency of internal audits will go up and as and when required external auditors will also be utilized.

Besides, the bank has decided to increase its focus on Current and Savings Account (CASA) targeting small depositors. The bank is already generating more than 40 per cent of its resources through CASA

Billionaire jeweller designer Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated the PNB of Rs 12,968 crore through fraudulent Letters of Undertaking (LoUs).

A Mumbai branch of Punjab National Bank had issued as many as 1,213 letters of undertaking (LoUs) fraudulently for the group of companies belonging to Nirav Modi since March 2011.

Different investigating agencies, including CBI and Enforcement Directorate, are probing the fraud, dubbed as the biggest banking scam in the country.