Punjab National Bank (PNB), which has been hit by a scam involving gems & jewellery entities of Nirav Modi and Mehul Choksi, seems to have a penchant for taking higher risks to get higher returns. While several banks steer clear of or limit exposure to the jewellery business, PNB\u2019s exposures have been more liberal. What FE gleaned from reported data is that the bank also earned the distinction of having the highest capital market exposure among listed public sector banks in fiscal 2016-17. And this has been rising. The third biggest state-owned lender by market capitalisation had a capital market exposure of 2.3% of total advances at the end of FY17, against 2.1% in the previous year. The bank\u2019s total advances grew 1.7% to Rs 4.19 lakh crore in FY17, data sourced from Capitaline showed. Indian Overseas Bank featured second among 21 listed public sector lenders with a capital market exposure of 1.64%. The largest public sector bank, State Bank of India, had an exposure of 1.5% of its loan book, which grew 7% in FY17. The average exposure of 21 banks stood at 0.8% at the end of FY17. Analysts tracking the sector pointed out that normally these loans are disbursed with high collateral security, typically two-times of the loan amount. \u201cThe probability of these loans turning bad is highly unlikely,\u201d said an analyst with a leading domestic brokerage. These are loans mostly given against pledged shares. So, as and when the underlying pledged securities slip to the trigger threshold value, the lender will ask for more collateral, observed the head of an equity research firm. Banks\u2019 capital market exposures would include both their direct and indirect exposures including advances against shares or convertible bonds or convertible debentures or units of equity oriented mutual funds to companies, promoters and individuals.While PNB has trimmed its direct investment in the capital market in fiscal 2017, the bank has lent extensively to mutual funds, with advances rising 73% to Rs 4,251 crore. The exposure to mutual funds accounts for 44% of its total exposure to the capital market sector of Rs 9,664 crore at the end of the FY17. The nature of loans qualifying as capital market exposure also includes secured and unsecured advances to stock brokers (and guarantees issued on behalf of them), to market makers and to stock brokers as financing for margin trading. However, according to the bank\u2019s latest annual report, it has zero exposure towards stock brokers for margin trading and bridge loans to companies against expected equity flows or issues.The market capitalisation of PNB has eroded by over Rs 10,000 crore ever since the biggest scam in the banking sector came to light last week. The valuation loss has seen it losing the second most valued bank tag to Bank of Baroda.