Punjab National Bank detects $1.8 bn fraud at a Mumbai branch

Mumbai, February 14

Punjab National Bank (PNB), 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.

"The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance," the filing by PNB earlier said.

Based on these transactions, other banks appear to have advanced money to these customers abroad, the filing said.

It has put the quantum of such transactions at $1,771.69 million (around Rs 11,515 crore).

The amount of fraudulent transactions is equivalent to eight times the bank's net income of about Rs 1,320 crore ($206 million).

Following the regulatory filing, the bank's shares plunged drastically. It had closed the day's trade on Wednesday down 9.81 per cent at the BSE.

Meanwhile, Financial Services Secretary Rajiv Kumar confirmed to IANS that a Central Bureau of Investigation (CBI) probe has been initiated and that 10 PNB employees have been placed under suspension.

The fraud was detected in the PNB's Brady House Branch, in south Mumbai, which is its second-biggest lending branch in the country, official sources said.

The fraud, which includes money laundering, concerns the Firestone Diamonds group in which the CBI last week booked billionaire diamond trader and designer Nirav Modi, his wife Ami, brother Nishal and a maternal uncle Mehul Choksi. It followed a complaint lodged by PNB on January 29 pertaining to an alleged cheating case of Rs 280 crore perpetrated by the quartet in 2011.

It is learnt from informed sources that that Nirav Modi wrote to PNB and other banks that he would return the outstanding money.

The latest case —which involves a sum considerably higher than the Vijay Mallya default of around Rs 9,000 crore—comes at a time when the Indian banking system is already grappling with swelling non-performing assets.

"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 PNB's regulatory filing said.

The bank's filing added: "The matter is already referred to law enforcement agencies to examine and book the culprits as per law of the land". Banking industry leader and former Vice-President of the All India Bank Employees Association Vishwas Utagi said if this was the scenario of one company pertaining to just one branch of PNB, then the situation was "truly alarming". "The CBI and other agencies must investigate all the members of PNB's Credit Approval Committee and the board of directors since such scams cannot take place without connivance at the top levels," Utagi said. 

PNB shares tank

Shares of Punjab National Bank (PNB) plunged 10 per cent on Wednesday today after the state-run bank detected financial fraud of over Rs 11,300 crore in one of its branches in Mumbai.

Other PSU banks were under pressure too and fell by up to 8 per cent after the Reserve Bank of India (RBI) came out with new norms for recognising stressed assets.

The stock of PNB settled at Rs 145.20 on the NSE, a slump of  0.29 per cent from its previous close. During intra-day trade, the scrip had touched a low of Rs 145.15.

Similar movement was witnessed on the BSE, as the scrip closed 9.81 per cent lower at Rs 145.80. It had opened at Rs 160 and soon touched an intra-day low of Rs 144.70.

Following the decline in the counter, the market capitalisation of the company eroded by Rs 3,844 crore to Rs 35,365 crore.

In a regulatory filing to stock exchanges on Wednesday, PNB said it has detected some fraudulent transactions with financial implication of $1.77 billion, and the matter has been referred to law enforcement agencies for recovery.

Among other banking counters, State Bank of India (SBI) declined 4.06 per cent to end at Rs 276.80.

Bank of India lost 7.87 per cent, followed by Allahabad Bank (7.79 per cent), Oriental Bank of Commerce (7.43 per cent), Canara Bank (5.82 per cent), Syndicate Bank (4.49 per cent), IDBI Bank  (4.22 per cent) and Bank of Baroda (1.75 per cent).

"The PSU banking space was the party spoiler today as we saw massive cut in individual names within this basket. Going ahead, one needs to keep a close eye on this basket as follow-through selling may result in further dampness in the market," said Sameet Chavan, chief analyst-technical and derivatives at Angel Broking.

On Monday after close of market hours, RBI came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC). IANS/PTI