LIVE TV
ZEE Business
ZEE BUSINESS
हिंदी में पढ़ें  हिंदी में पढ़ें
Live TV
Live TV
  • Home
  • Budget 2021
  • Personal Finance
    • PPF
    • Mutual Funds
    • Income tax
    • EPFO
    • Income Tax Calculator
    • Personal Loan Calculator
    • Car Loan Calculator
    • Home Loan Calculator
    • SIP calculator
    • SWP Calculator
    • MF Returns Calculator
    • Lumpsum Calculator
  • India
    • Companies
    • Property
    • Startups
    • Uidai
  • Economy
    • Aviation
  • Tech
    • Mobiles
    • Apps
  • Auto
    • Cars
    • Bikes
  • Markets
    • Commodities
    • Currency
  • Jobs
  • Indian Railways
  • World
    • Economy
    • Politics
    • Markets
  • videos
  • photos
  • Authors
  • More ...
    • VIDEOS
    • PHOTOS
Read in App
Business News » Companies News

PNB fraud: What is it, how it happened, and will it snowball?

  • Twitter
  • Facebook
  • Linkedin
  • whatapp
  • View in App
PNB fraud: What is it, how it happened, and will it snowball?
we believe such instances of fraud and further pressure on asset quality will be an overhang on valuations for PSU banks (especially PNB in this case). Image source: Reuters
Written By: ZeeBiz WebTeam
Updated: Fri, Feb 16, 2018
09:52 am
ZeeBiz WebDesk
RELATED NEWS
MTAR Technologies IPO Subscription: Check allotment status finalisation date and how to check if you got shares MTAR Technologies IPO Subscription: Check allotment status finalisation date and how to check if you got shares
Mid-cap Picks with Anil Singhvi: Know why Siddharth Sedani recommended Deccan Cement, PNC Infra and Galaxy Surfactants today Mid-cap Picks with Anil Singhvi: Know why Siddharth Sedani recommended Deccan Cement, PNC Infra and Galaxy Surfactants today
IRCTC share price today hits life-time high of Rs 2015.80; Investors make big money IRCTC share price today hits life-time high of Rs 2015.80; Investors make big money
Ircon Share Price: Government offers OFS at Rs 88; here is how stock market investors can make money Ircon Share Price: Government offers OFS at Rs 88; here is how stock market investors can make money
SBI Share Price: Investors Alert! Maximise your profit, market experts have this advice for you SBI Share Price: Investors Alert! Maximise your profit, market experts have this advice for you

Banks (especially PSU banks) have been grappling with structural asset quality issues, but over last few days risks have got exacerbated following fraud reported by Punjab National Bank (PNB) pertaining to Letter of Undertaking (LoUs) issued in favour of three diamond companies run by Mr. Nirav Modi. The unauthorised fraud has taken place in connivance with bank staff that casts shadow on robustness of process and expands risk beyond funded credit risks. Gross exposure is significantly higher at USD1.8bn, though at this juncture it will be difficult to ascertain financial impact across the banking system as investigations are on. However, we believe such instances of fraud and further pressure on asset quality will be an overhang on valuations for PSU banks (especially PNB in this case).

What has happened?

PNB’s officials had issued unauthorised Letter of Undertaking (LoUs) in favour of three companies (run by Nirav Modi namely Solar Exports, Steller Diamonds and Diamond R Us) for availing buyers’ credit. PNB employees in fact misused the SWIFT network to transmit messages to other banks bypassing the core banking system (CBS), and hoodwinking management about same. On these LoUs, overseas branches of Allahabad Bank, Axis Bank, etc., credited PNB’s Nostro account (from where funds were moved to certain overseas parties). Axis Bank has issued a clarification that it has sold down all the referred transactions and there is no financial implication relating to this case.

ALSO READ: Explainer: How PNB fell victim to India's biggest bank fraud

Will this spread elsewhere?

A cautionary note has been issued by PNB to several banks, suggesting similar modus operandi may have been used by these officials too in companies belonging to Mehul Choksi - Gitanjali Gems, Gili India and Nakshatra, while issuing LoUs/LCs. The transactions were initially routed through CBS, but later changed, the amount increased substantially and transmitted through SWIFT. The liability on respective banks depends on investigation outcome. Even Bank of India in Q3FY18 reported stress of INR94bn pertaining to stand-by LCs discounted by its overseas branches.

What is worrying us?

The amount involved is substantial (cumulative gross exposure relating to fraudulent transactions is USD1.8bn), but more worrying is the stark process lax and repeated instance of similar frauds (Winsome Diamond, etc).  PSU banks continue to grapple with weak systems, raising questions on why the processes are not centralised, unlike most private banks where bypassing CBS is not easy.

ALSO READ: 33,000% surge in 10 years and still counting! This stock deserves attention

At this juncture, investigating agencies have been roped in and it will take some time to ascertain the financial impact on banking system. As these raise concerns particularly with respect to exposure in gems & jewellery segment. However, higher exposure to gems & jewellery segment does not necessarily suggest stress as the transaction being discussed is one-off, intentional and unauthorised incident.

(Source: Edelweiss Securities)

Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.

TAGS:
MarketsPNB fraudPNBpublis sector banksoutlook on PNBgems and jewellery stocksPNB explainer
RELATED NEWS
MTAR Technologies IPO Subscription: Check allotment status finalisation date and how to check if you got shares MTAR Technologies IPO Subscription: Check allotment status finalisation date and how to check if you got shares
Mid-cap Picks with Anil Singhvi: Know why Siddharth Sedani recommended Deccan Cement, PNC Infra and Galaxy Surfactants today Mid-cap Picks with Anil Singhvi: Know why Siddharth Sedani recommended Deccan Cement, PNC Infra and Galaxy Surfactants today
IRCTC share price today hits life-time high of Rs 2015.80; Investors make big money IRCTC share price today hits life-time high of Rs 2015.80; Investors make big money
Ircon Share Price: Government offers OFS at Rs 88; here is how stock market investors can make money Ircon Share Price: Government offers OFS at Rs 88; here is how stock market investors can make money
SBI Share Price: Investors Alert! Maximise your profit, market experts have this advice for you SBI Share Price: Investors Alert! Maximise your profit, market experts have this advice for you

LATEST NEWS

Flipkart enables voice search in Hindi, English

UPSC CSE Prelims 2021: 10 things you need to know for appearing in the UPSC civil services prelims exam - Candidates don't miss

PUBG Mobile Lite 0.20.1 season 22 global update: Download APK link, check guide for global Android users

Voltas presents Maha-Adjustable Inverter AC 2021 range

UPSC Prelims notification 2021 released: Exam to be held on June 27—check details

LIC Jeevan Umang Insurance Policy: GUARANTEED benefits! NO LIMIT on maximum basic sum assured - All details here

7th Pay Commission latest news: REVEALED! Salary may be affected by New Wage Code - know details

HPCL Recruitment 2021: Salary CTC up to Rs 33.95 lakhs - PDF download, Syllabus, Apply Online, Without/Through GATE, Exam Date, Age Limit and more

Buckingham Palace to investigate claims Meghan Markle bullied staff

Stocks to buy with Anil Singhvi: Sandeep Jain recommends VST Tillers Tractors today

  • India News
  • World News
  • Companies News
  • Market News
  • Personal Finance News
  • Technology News
  • Automobile News
  • Small Business News
  • Income Tax Calculator
  • Live TV
  • Videos
  • Photos
  • Author
  • Rss Feed
  • Advertise with us
  • Privacy Policy
  • Legal Disclaimer

Latest Trending Updates

  • EPFO
  • Budget 2020
  • Income Tax Return
  • Auto Expo 2020
  • Home Loan
  • Business News

Trending Topics

  • Income Tax
  • income Tax Calculator
  • 7th Pay Commission
  • Reserve Bank of India
  • GST
  • Latest Business News

Follow us on

zeebiz
zeebiz

Partner Sites

  • Zee News
  • Hindi News
  • Marathi News
  • Bengali News
  • Tamil News
  • Malayalam News
  • Gujarati News
  • Telugu News
  • Kannada News
  • DNA
  • WION
Copyright © Zee Media Corporation Ltd. All rights reserved