PNB Rs 114 bn fraud impact: 54% customers prefer private banks to govt ones

Amid the blame game between Punjab National Bank and other affected lenders, the elaborate web of deception has left bank customers perplexed

The Rs 114 billion (Rs 11,400 crore) Punjab National Bank (PNB) scam, estimated to be the biggest-ever financial fraud to have hit the Indian banking sector, has left people wondering whether it is safe to keep money in banks at all. Given a choice, citizens would bank on the private sector. An online poll conducted by Business Standard reveals 54 per cent people on Facebook and Twitter prefer private banks over government ones.

Amid the blame game between Punjab National Bank (PNB) and other affected lenders in the Rs 114 billion scam, the elaborate web of deception has left bank customers perplexed. Interestingly, some Twitter users were of the opinion that both private and public sector banks are unsafe owing to weak risk management practices and glaring oversight lapses.

Doubts flagged by bank customers were on Thursday raised by some experts too. According to a Reuters' report, the Reserve Bank of India (RBI) has recorded data that shows the problem runs far deeper and wider. State-run banks have reported 8,670 "loan fraud" cases totalling Rs 612.6 billion ($9.58 billion) over the last five financial years up to March 31, 2017. The figures expose the magnitude of the problem in a banking sector already under pressure after years of poor lending practices. Bad loans surged to a record peak of nearly $149 billion last year.

Punjab National Bank said on Wednesday two junior officers at a single branch had illegally steered $1.77 billion in fraudulent loans to companies, most of them controlled by billionaire jeweller Nirav Modi. It was one of India's biggest frauds.

* Most Indian banks have not made much progress, while global banks tightened corporate governance post-2008 financial crisis.
* Banks' internal controls need to be strengthened
* Fraud protection is essentially a duty of the bank, say experts

WHAT IS THE FRAUD ALLEGATION ABOUT?

On Jan. 29, a PNB official from Mumbai filed a criminal complaint with India’s federal investigative agency against three companies and four people, including billionaire jeweler Nirav Modi and Mehul Choksi, the managing director of Gitanjali Gems Ltd, saying they had defrauded the bank and caused a loss of 2.8 billion rupees ($43.8 million).

The bank alleged two junior employees at the Mumbai branch had helped the companies and people managing them get “letters of undertaking” (LoUs) from it without having a sanctioned credit limit or maintaining funds “on margin”.

The LOUs were used to obtain short-term credit from overseas branches of other Indian banks, PNB said.

Based on the complaint, the Central Bureau of Investigation (CBI) registered a preliminary case against the companies and the people named on Jan. 31 and PNB said a detailed probe was underway.

On Wednesday, PNB said in a regulatory filing it had discovered fraudulent and unauthorized transactions totaling $1.77 billion at the Mumbai branch. Investigators have said the latest disclosure was related to the earlier case filed.
 

WHAT IS THE FRAUD ALLEGATION ABOUT?

On Jan. 29, a PNB official from Mumbai filed a criminal complaint with India’s federal investigative agency against three companies and four people, including billionaire jeweler Nirav Modi and Mehul Choksi, the managing director of Gitanjali Gems Ltd, saying they had defrauded the bank and caused a loss of 2.8 billion rupees ($43.8 million).

The bank alleged two junior employees at the Mumbai branch had helped the companies and people managing them get “letters of undertaking” (LoUs) from it without having a sanctioned credit limit or maintaining funds “on margin”.

The LOUs were used to obtain short-term credit from overseas branches of other Indian banks, PNB said.

Based on the complaint, the Central Bureau of Investigation (CBI) registered a preliminary case against the companies and the people named on Jan. 31 and PNB said a detailed probe was underway.

On Wednesday, PNB said in a regulatory filing it had discovered fraudulent and unauthorized transactions totaling $1.77 billion at the Mumbai branch. Investigators have said the latest disclosure was related to the earlier case filed.