Published: Thu, February 15, 2018
Business | By Tara Barton

PNB shares reeling, other Indian banks stabilise after giant fraud shock

PNB shares reeling, other Indian banks stabilise after giant fraud shock

At least 10 bank employees have been suspended but it is not clear whether anybody from the crucial PNB Credit Approval Committee or its Board of Directors figure among them.

Financial Services Secretary Rajiv Kumar said this seems to be an isolated case and is not going to impact other lenders.

The multi-pronged action came a day after the Punjab National Bank admitted to unearthing a fraud of Rs 11,515 crore involving Modi's companies and certain other accounts with the bank's flagship branch (Brady House) in Mumbai and its second largest lending window in India.

State-run PNB on Wednesday morning said that it has unearthed fraudulent transactions of around Rs11,400 crore in one of its branches in Mumbai and filed a complaint with the enforcement agencies on the fraud amid the concern that the contagion could spread to other banks. "Based on these transactions other banks appear to have advanced money to these customers overseas".

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"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.

In 2011, when a letter of undertaking (LoU) was opened at the Fountain branch of PNB in Mumbai by the alleged fraudster. No immediate comments were available from these companies. Meanwhile, Axis Bank was trading on the green and touched an intraday high of Rs 554.30, up 1.90 per cent on reports that it has sold all the referred transactions with respect to PNB's LoUs. At the time, PNB had said it was digging into records to examine the magnitude of the fraud.

It had also raided the residence of Modi, his brother Nishal, wife Ami and Mehul Chinubhai Choksi, all partners of Diamond R US, Solar Exports and Stellar Diamonds and two bank officials - Gokulnath Shetty (now retired) and Manoj Kharat, who were also named in the FIR as accused.

Banks are now looking at their systems and processes so that such frauds are not repeated, the official said. "This (investigation) is a part of the clean up drive that started with AQR (Asset Quality Review) in 2015". The public sector bank officer, quoted above, said there is strict instruction from the Finance Ministry to all banks that no big fish should go scot-free and no honest borrower is harassed.

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