Following the bank’s announcement, the finance ministry set a 15-day deadline for state banks to take pre-emptive action against operational and technical risks.
The scale of the fraud at PNB has put the lack of supervisory oversight by the central bank and auditors under the spotlight. Credit: Reuters
New Delhi/Mumbai: Punjab National Bank (PNB) said that the amount of fraudulent transactions involving the bank could go up by about $204 million in addition to the $1.77 billion it had earlier reported, sending shares down as much as 8.9% to a 20-month low.
PNB’s announcement late on Monday also sent other shares of state-run lenders lower, reinforcing concerns about the escalating financial cost of the unauthorised loans steered towards billionaire jewellers Nirav Modi and his uncle Mehul Choksi, owner of Gitanjali Gems Ltd.
Following the bank’s announcement, the finance ministry on Tuesday set a 15-day deadline for state banks to take pre-emptive action against operational and technical risks.
Rajeev Kumar, secretary in the department of financial services, said in a tweet that state-run banks have 15 days to “take pre-emptive action and identify gaps/weaknesses” to tackle rising operational and technical risks.
The scale of the fraud at PNB, the biggest to hit an Indian lender, has stunned the country and put the lack of supervisory oversight by the central bank and auditors under the spotlight.
Local media reported on Tuesday the Central Bureau of Investigation (CBI) had raided the offices of law firm Cyril Amarchand Mangaldas, which had represented Nirav Modi for a while.
Amarchand did not immediately respond to a request for comment, while a CBI media official was not immediately reachable.
Alpesh Mehta, deputy head of research, Motilal Oswal Securities, said markets were still trying to determine the scale of the financial impact since other lenders had given loans to Modi and Choksi based on letters of undertaking (LOUs), or guarantees, provided by PNB.
“People would have never expected these kind of losses in a state-owned bank and it’s difficult to ascertain the amount of damage it has caused,” Mehta said referring to PNB.
At least a dozen people – six from the bank and six more from Modi’s and Choksi’s companies – have been arrested, while investigators have seized a number of properties from the two, including jewellery and luxury vehicles.
Both Modi and Choksi, whose whereabouts are unknown, have said they are innocent.
PNB shares were trading down 8.2% at 10:30 am, after earlier hitting its lowest since June 2016. A sub-index of state-run lenders, the PSU Bank index, was down 2.5%, while top-ranked State Bank of India was down 2%.