PNB CITY BRANCH HAS ‘LOST’ 11000 ` CR OF PUBLIC MONEY

Nirav Modi link to massive fraud, which was earlier pegged at `280 cr May have cascading effect in banking industry Major city jewellers also under scanner PNB has suspended 10 employees

The Punjab National Bank, the second largest public sector bank, has unearthed a $1.8 billion fraud in one of its Mumbai branch. The amount involved -- Rs. 11,000 crore of taxpayers' money -was illegally transferred abroad to select customers. The bank has admitted to the fraud in a regulatory filing to the stock exchanges.

The amount involved is equal to almost one-third of the total market capitalisation of the bank. It is expected to have a cascading effect within the banking industry with the Finance Ministry asking all banks to investigate their books for similar frauds.

The illegal transactions benefited "a few select account holders with their apparent connivance" and based on these, "other banks appear to have advanced money to these customers abroad," the filing said. The detection has been come at a time when the banking system is already grappling with its swelling non-performing assets.

On February 5, the PNB, in a statement, had said its preliminary investigations showed that it had come across suspected fraud amounting to Rs 280 crore. PNB had then forwarded the case to the Central Bureau of Investigation which, in turn, had filed an FIR against diamond merchant Nirav Modi, wife Ami, brother Nishal and others. Nirav Modi had allegedly connived with bank officials to illegally obtain Letters of Undertaking, which were cashed overseas from different banks, both private and public sector. The alleged swindle was revealed when Nirav Modi's companies sought a fresh loan last month, the bank said.

On Wednesday, when the state-run bank issued a statement, the figures had swelled to a whopping Rs 11,360 crore. Major jewellers Gitanjali, Ginni, and Nakshatra have also come under the scanner of various investigating agencies, said PTI, quoting an unnamed bank official.

A bank gets money from two sources, namely, the Reserve Bank of India and depositors who keep money in the bank. Money that the RBI lends to a bank is essential to ensure cash reserve ratio -- that is, the minimum amount of money required for a bank to function. This only leaves the option of the siphoned off money being that of a normal customer.

The worry is that the impact of the PNB mess could extend to other lenders as well. There is no clarity either on whether the PNB is holding collateral that could back part of these transactions or whether enforcement authorities will be able to recover the entire amount, a report in Bloomberg said.

The fraudulent transactions are the equivalent of eight times the lender's 2017 net income of about 13.2 billion rupees ($206 million), exchange filings show. The stock of Punjab National Bank was trading at Rs 149.20 per share, down 7.70 per cent on the BSE at 1.59 p.m.