1. Nirav Modi fraud case could trigger prompt corrective action on PNB: Kotak report

Nirav Modi fraud case could trigger prompt corrective action on PNB: Kotak report

The Rs 11,400 crore fraud detected at Punjab National Bank could trigger prompt corrective action (PCA) by Reserve Bank, leading to stoppage in lending by it for sometime, says a report.

By: | Mumbai | Published: February 22, 2018 8:48 PM
Nirav Modi fraud case, nirav modi, pnb fraud, pnb case, pnb Nirav Modi. (Photo: Facebook)

The Rs 11,400 crore fraud detected at Punjab National Bank could trigger prompt corrective action (PCA) by Reserve Bank, leading to stoppage in lending by it for sometime, says a report. The state-run lender had detected fraudulent transactions worth USD 1.77 billion (Rs 11,400 crore) at one of its branches in Mumbai.

The transactions were carried out by diamond jeweller Nirav Modi by acquiring fraudulent letters of undertaking (LoU) from the lender’s Brady House branch in Mumbai to secure overseas credit from other Indian lenders.

The lender had said it would honour all ‘bonafide’ contracts suggesting that some of the claims may be disallowed while the other public banks are suggesting that this may not be the case.

“The impact on PNB, if this fully materialises is meaningful. Adjusting for the nine-month FY18 profits and the recent capital infusion, we expect tier-1 ratio at 7 per cent implying an impact of 230 basis points from this incident,” the report said.

For the nine months ended December 31, the lender reported a net profit of Rs 1,134 crore as against Rs 1,063 crore in the year ago period.

As of December 2017, the lender’s tier 1 ratio stood at 9.15 per cent.

“While a PCA cannot be ruled out on the bank given these lapses, it would nevertheless force the bank to pull back lending for some time till it shores up its capital base,” Kotak Institutional Equities said in a report today.

The bank can sell stake in some of its subsidiaries and joint ventures to raise money but since they are contractual agreements, it may take some time.

“A combination of stake sale in a few valuable entities like PNB Housing Finance (33 per cent worth Rs 6,600 crore), insurance (10 per cent stake in Metlife) and mutual funds (UTI MF-17 per cent) to raise funds, but since these are contractual arrangements, it can delay unlocking this value,” according to report.

The government has announced that it will infuse Rs 5,473 crore in PNB before March 31.

The report further said banks have been reducing their off-balance sheet risks in recent years. Part of this slowdown has been led by reduced corporate loan demand as project financing has come to a pause resulting in the unwinding of these instruments.

“We do see banks, especially public banks, significantly tightening their process post this incident which could put some pressure on corporates as any relaxation is unlikely to be encouraged,” the report said.

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  1. V
    Aug 28, 2014 at 6:44 pm
    HDFC Bank Manager arrested for LC fraud Wednesday, January 08, 2014 By Neel Shah A day after the arrest of an ICICI Bank employee by Mumbai Police for illegally withdrawing Rs.49 lakh from a dormant account, another such case has come to the fore wherein an HDFC Bank employee was found to have aided racketeers to withdraw approximately Rs.15 crore. On January 3, police personnel from the MRA Marg police station arrested Umesh Sakharkar, Manager (NRI Banking Branch, HDFC bank), in connection with the Letter of Credit (LC) racket, in which The Ratnakar Bank Ltd. was duped to the tune of nearly Rs.15 crore. The involvement of an HDFC bank employee in the racket was first highlighted by the ADC in its report ‘Private bank employee involved in LC racket’ (Dec. 23, 2013). The police were probing the LC racket case for more than a month and arrested Shwetal Sakaria (Managing Director of Arihant Chemicals and Resins (I) Pvt. Ltd.), his partner Ahilesh Shah and their aide Himanshu Bhatt. According to the police, Shwetal had formed a dummy company named Mahavir Enterprises and his aide Bhatt had approached The Ratnakar Bank. Subsequently, Bhatt presented three LCs on behalf of Shwetal to the bank and successfully procured nearly Rs.15 crore in total. The LCs given by the accused to The Ratnakar Bank belonged to HDFC bank, which turned out to be forged. During the probe, investigators had strongly suspected the involvement of a bank employee in the fraud. “While verifying the three LCs, the bank employee had declared it as authentic and this can be possible only with the involvement of a bank employee at a senior level”, said Addl. CP (South Region) Krishna Prakash. It was only after the three LCs were verified and marked as genuine, the Ratnakar Bank gave nearly Rs.15 crore to the accused, informed Ashok Jagdale, senior inspector of MRA Marg police station. After the credit period was over and when the Ratnakar Bank approached the HDFC Bank to encash the LCs, they were shocked to learn that all the LCs were forged. On November 27, a case was registered at MRA Marg police station and the police on November 30 arrested Shwetal. The latter’s interrogation led the police to arrest his partner Shah and aide Bhatt. Meanwhile, Sakharkar has been sent to police custody till January 9 and all the concerned accused are arrested and booked under sections 465 (Punishment for Forgery), 467 (Forgery of valuable security, will, etc.), 468 (Forgery for purpose of cheating), 471 (Using as genuine a forged doent), 420 (Cheating and dishonestly inducing delivery of property), 120B (Punishment of criminal conspiracy) and 34 (Acts done by several persons in furtherance of common intention) of IPC.

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