PNB shares nosedive, but other banks stabilise after Nirav Modi fraud case revelation
PNB on Thursday extended its fall for a second straight session and ended the day 12% lower at Rs 128.35 on BSE. The stock had fallen 10% on Wednesday, after the lender said it had detected a Rs 11,400 crore fraud at one of its Mumbai branches.PNB Scam Updated: Feb 20, 2018 17:07 IST
Bank shares broadly recovered on Thursday, a day after being hit by news of the country’s biggest ever bank fraud, although Punjab National Bank - the lender at the centre of a Rs 11.4 crore scam - has lost a fifth of its market value.
PNB, India’s second-largest state-run lender with Rs 313.14 billion market cap, disclosed the fraud in a regulatory filing on Wednesday, saying it had referred the matter to law enforcement agencies.
PNB on Thursday extended its fall for a second straight session and ended the day 12% lower at Rs 128.35 on BSE. The stock had fallen 10% on Wednesday, after the lender said it had detected a Rs 11,400 crore ($1.77 billion) fraud at a Mumbai branch.
The Nifty PSU bank index closed 1.10% lower at 3,270.55 on Thursday, after falling nearly five percent in the previous session, following the central bank’s announcement of tough rules for loan restructuring.
State Bank of India (SBI), the country’s largest bank, closed 0.74% higher, to partially reverse Wednesday’s 2% fall.
Given the scale of the fraud, the fallout from the case could spread and give rise to fresh questions about lending procedures at Indian lenders, particularly public sector banks, mired in soured debt.
PNB first notified India’s Central Bureau of Investigation (CBI) of its discovery in late January, and on Monday it issued a “caution notice” to warn other lenders about the suspected fraud.
PNB has said that two junior officials at the Mumbai branch had illegally issued “letters of undertaking” to get the overseas branches of other lenders to extend credit to “a few select account holders,” most notably companies with ties to billionaire jeweller, Nirav Modi.
Indian federal agents last week said they were investigating the jeweller and others over accusations that they defrauded PNB of $44 million, and a CBI official told Reuters on condition of anonymity that the cases were related.
Modi, who has not commented on the federal case so far, could not be reached for comment. His flagship Firestar Diamond has said it had no involvement in the case.
“We await more details, but if the ‘other banks’ have advanced money to overseas suppliers against PNB’s letter of credit, PNB would have to honour the payments, in our view, and would have to seek to recover the money from these overseas suppliers,” said Morgan Stanley analyst Sumeet Kariwala, in a note to clients on Thursday.
“This could subject PNB to significant potential impairments,” he wrote, adding this could increase the bank’s capital requirement by 80 billion rupees ($1.25 billion).
Television news channels reported on Thursday that investigators had entered PNB’s headquarters in Delhi, and various other locations, including Modi’s Mumbai home.
A finance ministry official said the Enforcement Directorate, a government agency that fights financial crime, would investigate the case to see whether it involved money laundering.
PNB has not named the other banks it said had advanced money to customers based on the fraudulent transactions.