Punjab National Bank (PNB), the country’s leading and trusted public sector bank, has once again become the subject of discussion. This time, the reason for the discussion isn’t a new scheme, but a major fraud of ₹2,434 crore that has been uncovered within the bank. The bank has reported this fraud to the Reserve Bank of India (RBI). The case involves two companies of the Kolkata-based SREI Group.
What is the whole matter?
According to the bank, the fraud occurred in two separate accounts. These include:
- SREI Equipment Finance Ltd – Embezzlement of Rs 1,241 crore in it.
- SREI Infrastructure Finance Ltd – Embezzlement of Rs 1,193 crore.
Adding these two amounts, the total amount is ₹2,434 crore. The bank has classified this as “borrowing fraud,” meaning that significant fraud has occurred in the obtaining or use of the loan.
How did the fraud happen?
Simply put, when a company takes a loan from a bank for a project but invests the money elsewhere instead of investing it in the project, it is considered fraud.
Shrey Group was started in 1989 and primarily financed machinery used in construction. Over time, the company’s debt burden increased and it became unable to repay it. The situation worsened to such an extent that in October 2021, the RBI had to intervene and the company’s board was dissolved. Later, a resolution plan was approved through the National Asset Reconstruction Company (NARCL), but the investigation is still ongoing.
Will the bank be affected?
It’s natural for account holders to be concerned about any major fraud. However, in this case, PNB had already made 100% provisioning, meaning the bank had set aside enough from its profits to ensure that even if the money wasn’t recovered, the bank’s financial position would not be affected. The bank’s provision coverage ratio (PCR) is approximately 97%, indicating that the bank remains in a strong position.
PNB and old scam connection
PNB has been implicated in major scams before. In 2018, the bank was rocked by the Letter of Undertaking (LoU) scam involving Nirav Modi and Mehul Choksi. However, the current case is different. This is a corporate loan fraud, not trade finance. The saving grace is that the bank recognized the fraud in time and reported it to the regulatory authority.
Impact on the stock market
PNB shares saw a slight decline before this news. However, the bank’s stock has returned 144% to investors over the past three years.