Shares of Punjab National Bank sank further on Thursday as investors worried over the quantum of the $1.77-billion (over Rs 11,000 crore) fraud disclosed by the country's second largest state-owned lender continued to sell shares.
In morning trade, the stock was down 6 per cent at Rs 137. On Wednesday, PNB shares had tumbled almost 10 per cent.
The sell-off follows disclosures by the bank that it had detected fraudulent and unauthorised transactions in one of its branch in Mumbai for the benefit of a few select account holders with their apparent connivance. The quantum of such transactions is more than Rs 11,000 crore.
PNB had reported a consolidated net profit of Rs 1,187.24 crore, on total income of Rs 57,226 crore in the year-ended March 2017.
The stock tanked considering the magnitude of the scam, which is nearly one-third the market capitalisation of PNB, said Jaikishan Parmar, research analyst at Angel Broking.
"The case assumes significance because based on these transactions other banks had advanced loans to these clients abroad. This dampens the sentiments around PNB, which had seen a marginal improvement in its asset quality in this (third) quarter," added Parmar.
PNB has already filed complaints in relation to the alleged fraud by Nirav Modi, a prominent diamond merchant. The Enforcement Directorate has also been roped in.
This is the second incident in ten days that the bank has been allegedly defrauded by the same person. On February 5, PNB had disclosed that it had come across a suspected fraud involving one branch, wherein certain irregularities had been observed on account of people risk. That matter involved Rs 280.70 crore.
The CBI filed an FIR on January 31 in that case. The allegations mentioned in the complaint prima facie disclose that Nirav Modi, Nishal Modi, Ami Modi, Mehul Choksi—all partners of Diamonds R US, Solar Exports and Stellar Diamonds—in conspiracy with two officials of the bank and other unknown persons committed the offence of cheating against PNB and caused a wrongful loss.
Meanwile, Axis Bank clarified on Thursday morning that, while it had in the past done transactions against PNBs authenticated letters of undertakings, the private sector lender had since sold down all the referred transactions.
"In the normal course of trade business, the bank, through the overseas branches, undertakes transactions against LoUs (Letters of Undertaking) issued by other banks. These amounts are then credited to the LoU issuing bank's Nostro accounts. Axis Bank has in the past undertaken such transactions with PNB against their authenticated SWIFT LoUs. Axis Bank is also an active participant in the secondary market for such transactions, and the bank has sold down all of the referred transactions," it said.
Axis Bank shares were trading 0.3 per cent higher in late morning trading.
An LoU is like a letter of credit and is typically issued by a bank to an importer, who in this case was Nirav Modi. It is alleged that the LoUs issued by PNB were encashed by Nirav Modi and others from banks, including Axis Bank and Allahabad Bank.
It is alleged that two of PNB's employess fraudulently issued the LoUs.
How much will be PNB's liability? The lender says it will depend on the genuineness of the underlying transactions.
"In the bank, these transactions are contingent in nature and liability arising out of these on the bank shall be decided based on the law and the genuineness of underlying transactions," it said.
However, analysts believe that the bank will have to take additional provisions over the next few quarters in the wake of this fraud.
Meanwhile, Mehul Choksi, managing director of Gitanjali Gems, whose name also figures in the earlier FIR had already stated that he retired as a partner in Diamonds R US in 1999 and since has had no association with them. He feels he has been falsely implicated and plans to take action to get his name removed as one of the accused.
However, Gitanjali's shares were still down 15.6 per cent at Rs 49.45.
