New Delhi: The Punjab National Bank has reported fraudulent transactions worth Rs. 11,360 crore from a single branch in Mumbai. The amount is equal to one-third of the total market capitilisation of the bank.
The country’s second-largest state lender in a filing to the BSE on Wednesday informed of the fraudulent transactions.
According to National Stock Exchange (NSE), PNB approximately has a market capitalisation of Rs 36,566 crore with a total loan book of Rs 4.5 lakh crore. With the sharp fall, investors lost nearly Rs 3,000 crore of wealth on a single day.
India’s banking sector is already reeling under multiple woes of non-performing assets (NPAs) and lack of liquidity post demonetisation, corporate quarters now have a new scam to discuss.
What led to the scam?
On February 5, the PNB, in a statement, said its preliminary investigations showed that it had come across suspected fraud amounting to Rs 280 crore.
“Punjab National Bank has come across certain fraudulent Letter of Undertakings issued by two of its employees namely Gokulnath Shetty and Manoj Hanument Kharat at Brady House Branch Mumbai in connivance with a firm belonging to Nirav Modi, Nishal Modi, Ami Nirav Modi and Mehul Chinubhai Choksi partners of M/S Diamond R US, M/S Solar Exports and M/S Stellar Diamond,” the bank had said in a statement.
PNB then forwarded the case to the Central Bureau of Investigation (CBI). “On unearthing these fraudulent activities, the bank rejected the request for roll-over and decided to inform the regulator and the CBI for investigation,” it had said.
Taking cognisance of the complaint, the CBI has filed an FIR against businessmen Nirav Modi, his wife Ami, his brother Nishal and Mehul Choksi.
“The public servants committed abuse of official position to cause pecuniary advantage to Diamond R US, Solar Exports, Stellar Diamonds and wrongful loss of Rs 2.8 billion to Punjab National Bank during 2017," the FIR by CBI said.
The CBI had registered the case under the Indian Penal Code (IPC) sections in connection with criminal conspiracy, cheating and provisions of Prevention of Corruption Act against the four.
The firms contested this saying that they availed this facility in the past also. However, branch records did not reveal details of any such facility granted to the said firm, the probe agency said.
What is the latest development?
Today, when the state-run bank issued a statement, the figures reached a whopping Rs 11,360 crore. PNB, however, neither revealed names nor clarified whether this is a separate set of transactions or linked to the earlier, the latter likely to raise further eyebrows.
Whose money was it?
A bank typically has money from two sources, namely, the Reserve Bank of India (RBI) and depositors who keep money in the bank. The corporate side provides money from shareholders as well.
In this case, the bank has reported fraudulent ‘transactions’ thus ruling out the corporate case. Money that the RBI lends to a bank is essential to ensure cash reserve ratio, i.e the minimum amount of money required for a bank to function. This only leaves the option of the money being that of a normal customer.
The bank when talking about fraudulent transactions essentially means that there is no trace of the barter, thus making chances of the money coming back to the bank dim.
A back of the envelope calculation says that if a customer has Rs 100 deposited in the bank, one-third of the money —around Rs 30 per Rs 100 — is at risk of being lost.
How big is the number?
The bank said in a regulatory filing that the transactions were "for the benefit of a few select account holders with their apparent connivance" and that "based on these transactions other banks appear to have advanced money to these customers abroad."
Market capitalisation is the total market value of a company's outstanding shares. It is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to using sales or total asset figures.
Using market capitalisation to show the size of a company is important because company size is a basic determinant of various characteristics in which investors are interested, including risk. It is also easy to calculate. A company with 20 million shares selling at $100 a share would have a market cap of $2 billion.
According to data provided by the bank, PNB has 6,941 domestic branches with one single branch accountable for fraudulent transactions as much as ten times the budget allocated by the Narendra Modi led government for the mega health scheme. Not long before Finance Minister Arun Jaitley read out the Budget 2018, rural livelihood mission and farmer crop protection scheme accounted for as much money that is potentially misplaced by Punjab National Bank.
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