Govt looks to allay fears of PNB fraud contagion

Finmin says case not out-of-control, asks banks to send reports of similar cases

The finance ministry on Wednesday sought to allay worries over the Rs 11,300-crore fraud case at Punjab National Bank, saying the case not “outof-control” and it is taking action in this respect.

“I don’t think this is out of control or too big a worry at this point. That is my broad sense,” Joint Secretary in Department of Financial Services Lok Rajan said on the sidelines of an event here.

Earlier in the morning Punjab National Bank (PNB) disclosed that it has detected some fraudulent transactions with financial implication of $1.77 billion (about Rs 11,346 crore) and the matter has been referred to law enforcement agencies for the recovery. Based on these transactions, other banks appear to have advanced money to these customers abroad, it said.

The finance ministry has also asked all banks to send reports involving this case or other such incidents latest by the end of this week.

Since more than one lender is involved, all banks have been asked by the Department of Financial Services to submit a status

report soon on the fraud, official sources said.

The finance ministry has asked, through the reform agenda circulated to the banks on January 24, that dubious accounts should be scrutinised and appropriate action against fraudsters be taken with zero tolerance, sources said. Banks

should not dither from taking action against their own employees in case of collusion if there is sufficient ground, they added.

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 quantum of such transactions is $1771.69 million, it said.

The case poses further questions about the health of the country’s banks, which are already grappling with higher bad loan ratios. It’s also likely to create a challenge for CEO 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.

“So far there is no clarity on impact on the lender’s bottom line from this,” said Asutosh Kumar Mishra, a banking analyst at Reliance Securities. “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 Rs 13.2 billion, exchange filings show. It is also close to one-third of the bank’s total market capitalisation of Rs 36,000 crore, or 2.55 percent of total loan book of Rs 4.5 lakh crore as of December 2017. The scrip closed 9.81 per cent lower at Rs 145.80 on the BSE.