Punjab National Bank that is the nation’s second largest public sector bank has detected its largest financial fraud amounting to $1.8 billion at its single branch located in Mumbai that could include a large number of lenders. In the statement its officials stated that several unauthorized transactions have been detected at its branch that were apparently made for the benefit of few privileged account holders with active connivance of branch officials. These transactions revealed that the bank has advanced money to customers through their overseas accounts.
This recent revelation has led to further questions about alarming condition of public sector banks that are grappling with their worst phases of bad loans. The situation is likely to pose a tough challenge for PNB’s chief Sunil Mehta who took charge last year when his bank and 12 other banks were reprimanded and fined by Reserve Bank for violating foreign exchange regulations amounting to more than $1 billion. Though the bank has not given details about lenders that were given these funds or how this could impact its bottom-line, investigative agencies hope that there is enough collateral to recover at least part of this amount.
Punjab National Bank’s shares tumbled by 7.5% on the bourses after this announcement as the fraudulent transactions amount to almost eight times of the bank’s earnings in 2017. It is not clear if the fraud is connected in some way to a previous case wherein a jeweler had obtained fraudulent documents from PNB to obtain loans from another bank. These documents were fake letters of undertaking amounting to 2.8 billion rupees that were supposedly issued by PNB that the jeweler used to obtain funds from a bank. It appears as that the borrower used the details of transactions made by Punjab National Bank to its overseas accounts to get money from other banks without submitting adequate collaterals.