PNB fraud: It’s been a month today when nation’s second-largest PSU bank Punjab National Bank first informed about the fraud entailing the diamond merchant Nirav Modi and his uncle Mehul Choksi. Shares of the state-run lender PNB faced a knee-jerk reaction on the day when the scam was detected following which almost all PSU bank shares came under pressure as soon as the investigative agencies such as Enforcement Directorate, the Central Bureau of Investigation and the anti-fraud agency SFIO (Serious Fraud Investigation Office) started their respective probes. Due to the heightened pessimism on the back of India’s biggest banking fraud, shares of PNB have fallen about 40% in a span of one month while the stock of Mehul Choksi-led Gitanjali Gems had nosedived around 77% in the same period under review.
A month after PNB-Nirav Modi fraud came to light, we take a look at the Rs 13,600 crore scandal in 13 points
- On the morning of Valentine’s Day, 14 February 2018, the New Delhi-headquartered state-owned Punjab National Bank said that the bank has found “unauthorised and fraudulent” transactions amounting $1.77 billion (~ Rs 11,400 crore) at a Brady House branch of Mumbai.
- The fraudulent transactions were supposedly executed on the behalf of the billionaire diamantaire Nirav Modi and his uncle Mehul Choksi in the Mumbai branch by some rogue employees of Punjab National Bank.
- Before making the fraudulent transactions public, PNB had filed a case against Nirav Modi and Mehul Choksi with the investigative agencies Enforcement Directorate and the Central Bureau of Investigation.
- Soon after the scam came to light, nationwide raids were conducted at the offices, homes, and stores of Nirav Modi and Mehul Choksi. But upon the investigation, according to various reports, it was found that Nirav Modi along with his wife and uncle Mehul Choksi had left India much in advance in January.
- Nirav Modi and Mehul Choksi were the prime accused in the fraud. Nirav Modi group companies have allegedly obtained buyer’s credit (a type of loan) from several domestic lenders outside India on the basis of fake LoU (Letters of Undertaking) issued by PNB employees without registering the transactions into the SWIFT system and following proper protocols.
- Nirav Modi refused to return to India and sounded sceptical on paying the money to Punjab National Bank and have missed the summons sent by investigative agencies. Further, Nirav Modi in an email written to Punjab National Bank had said that his wife and uncle are not involved in raising the money on the basis of fake LoU issued by PNB.
- Initially, public sector banks such as State Bank of India, Bank of Baroda, Allahabad Bank, UCO Bank, Union Bank of India, etc were having exposure to the PNB fraud. Recently yesterday, Bank of Baroda clarified that the PSU lender doesn’t have exposure to Nirav Modi companies.
- Later on 26 February 2018, PNB said that the quantum of fraudulent transactions may scale up by $204 million (~ Rs 1,300 crore) taking the total amount to Rs 12,700 crore.
- In the span of last one month, PSU banks have gone through an extreme patchy phase on the jitters of big banking scandal with shares of Bank of India, Canara Bank, Union Bank of India, Allahabad Bank, Andhra Bank, Indian Bank, Bank of Baroda falling 15-30%. The stock of Punjab National Bank had fallen 39.5% to Rs 97.95 from a level of Rs 161.65 on NSE in last 30 days. Following a huge slide in the share price of PNB, a massive decline had been observed in the market capitalisation of PNB. Over the course of last 30 days, PNB had lost Rs 15,439 crore in the market capitalisation, as at 13 March 2018, PNB held a market capitalisation of about Rs 23,771 crore as against Rs 39,210 crore (on 12 February 2018), on BSE.
- Many top bankers have been questioned in connection with the case so far including the former boss of Punjab National Bank and senior management of Nirav Modi and Mehul Choksi companies.
- Earlier last week, Chanda Kochhar, MD & CEO, ICICI Bank and Shikha Sharma, MD & CEO, Axis Bank have been summoned by the anti-fraud agency SFIO with regard to the PNB scandal. The current MD & CEO of Punjab National Bank had also been questioned by SFIO officials.
- The multi-billion rupees scandal which is touted as India’s biggest banking fraud involving nation’s second-largest state-run bank Punjab National Bank is getting bigger day after day. Yesterday only, PNB said that the quantum of fraud may further rise by Rs 942 crore taking the total amount to over $2 billion (~ Rs 13,600 crore). “The amount of Rs 942 crore were the regular limits sanctioned to Geetanjali Group under consortium lending and were standard credit exposure at the time of detection of the fraud. Now, this exposure is being added to the existing fraudulent amount. This amount has nothing to do with any new fraudulent LoUs/ LoCs,” PNB said in an exchange filing.
- In a major announcement yesterday, the Reserve Bank of India had blocked all the banks issuing guarantees in the form of LoU. The Reserve Bank of India also banned the issuance of letters of comfort which, like LoUs, are used by importers to fund their overseas purchases effective immediately. “On a review of the extant guidelines, it has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks with immediate effect,” RBI said in a statement.