PNB detects $1.8B fraud at a branch
mumbai — Punjab National Bank, the second largest public sector bank in India, has detected a $1.8 billion fraud in one of its branches here, the bank said in a regulatory filing to the stock exchanges on Wednesday. Its impact could extend to other lenders as well.
The bank has detected some fraudulent and unauthorised transactions in the branch in Mumbai “for the benefit of a few select account holders with their apparent connivance,” it said.
“Based on these transactions other banks appear to have advanced money to these customers abroad. In the bank these transactions are contingent in nature and liability arising out of these on the bank shall be decided based on the law and genuineness of underlying transactions,” the filing said.
The case poses further questions about the health of India’s banks, which are already grappling with one of the worst bad-loan ratios among big economies.
It’s also likely to create a challenge for Chief Executive Officer Sunil Mehta, who took charge last May about a year after PNB and 12 other lenders were fined for violating rules on some $1 billion of foreign-exchange deals. The Reserve Bank of India didn’t immediately reply to an email seeking comment.
Investigative agencies have been informed about the latest fraud transactions, PNB said.
The bank didn’t elaborate on what impact the fraud may have on its finances and it didn’t name the other lenders which could be hurt. “So far there is no clarity on impact on the lender’s bottom line from this,” said Asutosh Kumar Mishra, a Mumbai-based banking analyst at Reliance Securities Ltd. “There is no clarity on whether these transactions are reversed, whether the bank is holding collateral that could back part of these transactions or whether enforcement authorities will be able to recover this amount.”
The fraudulent transactions are the equivalent of eight times the lender’s 2017 net income of about Rs13.2 billion ($206 million), exchange filings show. PNB shares fell 9.8 per cent in Mumbai, the steepest drop since August 2015.
so far there is no clarity on impact [of the scam] on the lender’s bottom line. PNB statement
It’s also unclear if the fraud is linked to another case PNB had reported earlier this month, where a jeweller allegedly acquired fraudulent letters of undertaking worth Rs2.8 billion from PNB in order to obtain loans. At the time PNB had said it’s digging into records to see if the hit is much deeper. On February 5, the Central Bureau of Investigation (CBI) had booked billionaire diamond service provider Nirav Modi, his brother, wife and an enterprise companion for allegedly cheating PNB of over Rs280.7 million last year.
Following the complaint, the CBI registered a FIR under the Indian Penal Code sections related to criminal conspiracy, cheating and provisions of the Prevention of Corruption Act against the four. —