Punjab National Bank (PNB), one of the oldest and trusted public sector banks of the country, is once again in the headlines. Sadly, this time the focus is not on any new scheme but on a big scam. The bank has told the regulatory body, Reserve Bank of India (RBI) that it has detected a fraud of about ₹2,434 crore. Two companies of Kolkata’s SREI Group are involved in this case. Such cases coming to light every day in the banking sector raise questions in the minds of common people that how safe is the money of banks and how these frauds were committed.
What is the full story?
According to information provided by the bank to the stock exchange, the fraud took place in two different accounts: SREI Equipment Finance Limited and SREI Infrastructure Finance Limited. The bank said that there were indications of violation of rules and misuse of funds in these accounts.
According to the data, fraud of Rs 1,241 crore has been detected in the account of Shree Equipment Finance and Rs 1,193 crore in the account of Shree Infrastructure Finance. Overall, this amount amounts to Rs 2,434 crore. In its report, the bank has classified it as ‘loan fraud’, which simply means that a major fraud has been committed while taking or using the loan.
How was this fraud done?
It is important to understand how such a huge amount of money is embezzled. In the language of banking, when a company takes a loan from the bank for a particular project or work, but instead of spending the money, uses it for other purposes or transfers it to other companies, then it comes under the category of fraud.
Established in 1989, Shree Group primarily financed machinery used in construction projects. But with time, the debt burden on the company increased and it failed to repay the money. The situation became so bad that RBI itself had to intervene in October 2021. The Central Bank dissolved the company’s board due to deficiencies in governance and defaults of about ₹28,000 crore. Although a resolution plan was later approved through the National Asset Reconstruction Company (NARCL), the investigation is still ongoing.
Will the bank go under?
Whenever news of any bank fraud comes, the account holders first get nervous. However, in this matter PNB has said that the situation is completely under control. The bank made it clear that even though the amount was huge, it had already made preparations for it.
PNB has made 100% provisioning for this non-performing asset (NPA). In simple words, the bank had already set aside this amount from its profits so that even if this money was never recovered, the health of the bank would not be affected. The provision coverage ratio (PCR) of the bank is around 97 percent, which shows that the bank is in a financially strong position and account holders need not panic.
PNB and scams have a long relationship
In 2018, PNB’s name also came up in the much talked about scam related to Nirav Modi and Mehul Choksi. At that time, Letters of Undertaking (LoUs) worth thousands of crores of rupees were misused, due to which the entire banking system was shaken. However, the present case is different. This is a case of corporate loan irregularities, not trade finance. The matter of relief is that the bank identified it in time and reported it as per the rules. Talking about its impact on the stock market, a slight decline was seen in the shares of PNB before the news came. However, in the last three years, the bank’s shares have given an excellent return of 144 percent to the investors.
