Fraud at PNB 30% of its total mcap; A case for more oversight?

A huge sell-off broke out at the counter of Punjab National Bank (PNB) on Wednesday soon after the news of a financial fraud of over Rs 11,000 crore at one of its Mumbai branches.

To get a fix on the magnitude itself, let's talk of the quantum. The amount involved is nearly one-third of the total market capitalisation (mcap) of the lender, that is around Rs 35,500 crore.

The reporting of the fraud by the public lender threw the stock off-balance, which declined over 9.81 per cent to Rs 145.80 on the BSE. The scrip sank over 10 per cent to Rs 144.85 on the NSE.


Of late, a few domestic and global brokerage houses have maintained ‘Buy’ rating on PNB post its Q3 earnings results.

In a regulatory filing to stock exchanges, PNB said it has detected some fraudulent transactions with financial implication of $1.17 billion (about Rs 11,334.4 crore), and the matter has been referred to law enforcement agencies for recovery.

Also Read | PNB-like frauds are hushed up in new private sector banks: Hemindra Hazari

The transactions at one of its branches in Mumbai were in favour of select account holders with an apparent connivance, PNB said further. Based on these transactions, other banks appear to have advanced money to these customers abroad, it added.

Market expert Hemindra Hazari, in an interaction with ET Now, said, “It is a very alarming and shocking figure and it speaks poorly for PNB that it could have such a thing happen in its bank. This is an aspect which both media and analysts really do not look at, which are the off balancesheet items of banks. I also point out that you will find that the new private sector banks have much higher off balancesheet items at the size of their balancesheet compared to PSU banks.”

He cautioned that one should be extremely careful because there is no adequate disclosure on off balancesheet items, where there is a huge potential for fraud. This is something on which analysts must start now quizzing the senior management of banks and what exactly is happening in the off balancesheet space.

All the PSU lenders were trading in the red, with the Nifty PSU Bank index tumbling over 3 per cent in the afternoon trade. Majors such as State Bank of India, Allahabad Bank, Canara Bank, Bank of Baroda and PNB were down 3-10 per cent.

This kind of announcement brings up the possibility of much more such instances coming from the sector.

“I think a perfect storm is brewing for the banking sector and the government banks appear to be in the eye of the storm even as these RBI norms sound very nice that you are going to get a clean-up. It will entail really huge provisions and therefore, huge losses for the banks that have a lot of bad debts of these type and these principally will be with the government banks,” Hazari added.

PNB on February 6 posted an 11.06 per cent increase in net profit at Rs 230.11 crore for the third quarter ended December 2017 on the back of decline in bad loans.

It had reported a net profit of Rs 207.18 crore in the same period of the previous fiscal.