The fraud, by far the biggest ever detected by an Indian bank, comes to light at a time when lenders are hobbled by $147 billion in soured loans on their books.
Axis Bank said on Thursday that it had dealt in transactions that had been guaranteed with letters of undertaking from Punjab National Bank, but it had since sold those transactions.
PNB, the country's second-largest state-run lender with assets of USD120 billion, said in a regulatory filing that the fraud benefited "a few select account holders".
Punjab National Bank files complaint with CBI against Nirav Modi, jewellery company alleging Rs 11,400 crore fraud
Modi, whose jewellery creations are popular among global celebrities, may face a fresh CBI probe as the agency is looking at suitable legal action to be taken in the case.