Stocks of Punjab National Bank (PNB) tumbled by over 10% intra-day on the Bombay Stock Exchange after the bank declared that it had discovered frauds to the tune of $1.771 billion (over Rs 11000 crore).
The fraud is nearly eight times the size of the bank's net income in 2017 and shockingly originated from one PNB branch - at its Brady House Branch in Mumbai.
The bank had posted a net income of $206 million in 2017.
Billionaire jeweller Nirav Modi is suspected to be one of the big beneficiaries of the scam.
The fall in PNB's stock value following the news was steep. The bank's scrips on the Bombay Stock Exchange ended down 10.39% at Rs 144.85. At the time of pre-opening on Wednesday, the scrip was trading at Rs 159. More pain may be in the offing for the beleaguered stock.
The scam represents one-third of PNB's current market cap and is twice the amount (Rs 5473 crore) that the bank was supposed to get from the Centre as part of the nationalised banks recapitalisation plan. Essentially, this means that even if the bank were to recover 50% of the value lost in the scam, it would nullify the benefits of at least the PNB recap plan.In the bank's original regulatory filings to the BSE, it noted, "The bank has detected some fraudulent and unauthorized transactions (messages) in one of its branch in Mumbai for the benefit of a few select account holders with their apparent connivance."
On Wednesday, it emerged that the case these unauthorised transactions originated in PNB's Brady House branch. 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 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 quantum of such transactions is $ 1.77169 billion (approximate)," Punjab National Bank was quoted as saying in a statement.
Asutosh Kumar Mishra, banking analyst at Reliance Securities Ltd, told Bloomberg: "So far there is no clarity on impact on the lender's bottom line from this. There is no clarity on whether these transactions are reversed, whether the bank is holding collateral that could back part of these transactions or whether enforcement authorities will be able to recover this amount."
The bank's full statement on the latest case to the BSE:
Linked to earlier scam?
The bank had reported another fraud a week ago, where billionaire diamantaire Nirav Modi acquired fraudulent letters of undertaking worth Rs 280 crore.
Reportedly the bank had underestimated the extent of that scam then and new assessment now makes PNB believe that the potential liability could be Rs 11000 crore, according to reports.
On Wednesday, the Central Bureau of Investigation received a second complaint from Punjab National Bank. The bank has named Nirav Modi and another jewellery company for their involvement in the over Rs 10000 crore fraud in their complaint, it is reported.
PNB also suspended ten bank officials, including a Deputy Manager, Forex Division (Gokulnath Shetty) from the Breach Candy branch. Shetty and another official Manoj Kharat were reportedly the ones who issued the Letters of Understanding to Modi and his colleagues.
Secretary of the Department of Financial Services, Rajiv Kumar promised that all that can be done in the case will be done.
"The case relates to Nirav Modi and Gitanjali Gems," Kumar told BloombergQuint. "This started in a fraudulent manner in 2011. Fraud letter of undertaking was issued by a branch manager in Mumbai."
Separately, he told ANI that "this is part of NPA (Non-Performing Assets) resolution reforms agenda. Cleaning of banks is the top priority of the government, and it directed all the banks on NPA clean up to help honest borrowers avail loans. After having recapitalised, we will ensure all banks are cleaned up. This is a one-time cleaning exercise. Whatever it takes, we will do it."
Here are a few tweets on the biggest scam in India's banking history:
To put things in perspective, the amount lost by #PNB in a fraud at one branch is equal to 5 times the sum allocated by the government for its new mass health insurance scheme in the coming financial year. The market value loss is much higher, of course.— Madhavan Narayanan (@madversity) February 14, 2018
Nirav Modi net worth 1.73 billion dollars . Firestar Diamonds net revenue at 2.3billion dollars. Alleged fraud at - 1.77 billion $ #PNB.— Shai (@Am_Shai) February 14, 2018
Punjab National Bank reports a fraud of $1.8 billion. Thus becoming India's first Unicon.— Ramesh Srivats (@rameshsrivats) February 14, 2018
Nirav Modi: The man PNB thinks is responsible for embezzling over Rs 11000 crores
PNB suspends 10 in a fraud involving jewellery designer Nirav Modi