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 too the reason for discussion is not some new scheme but a huge scam. The bank has informed the regulatory body Reserve Bank of India (RBI) that it has detected a fraud of about Rs 2,434 crore. This matter is related to two companies of Kolkata-based Shrey Group. Such cases coming to light every day in the banking sector raise questions in the mind of the common man that how safe is the money of the banks and how has this fraud been committed?
what is the whole matter
According to the information given by the bank to the stock exchange, this fraud has taken place in two different accounts. This includes Shrey Equipment Finance Limited and Shrey Infrastructure Finance Limited. The bank said that there are signs of ignoring rules and misuse of funds in these accounts.
If we look at the figures, fraud of Rs 1,241 crore has been revealed in the account of Srei Equipment Finance and Rs 1,193 crore in the account of Srei Infrastructure Finance. If these two are combined, the total amount becomes Rs 2,434 crore. In its report, the bank has put it in the category of ‘Borrowing Fraud’, which simply means that major fraud has been done while taking or using the loan.
How was this fraud carried out?
It is important to understand how such a huge amount is embezzled. In banking terminology, when a company takes a loan from the bank for a particular project or work, but instead of spending that money there, invests it in some other work or diverts it to other companies, then it comes under the category of fraud.
Talking about Shrey Group, this company, started in 1989, mainly used to finance machines used in construction works. But with time the debt burden on the company increased and it failed to return the money. The situation worsened so much that RBI itself had to intervene in October 2021. The central bank had dissolved the board of the company due to shortcomings in governance and default of about Rs 28,000 crore. Although the resolution plan was later approved through the National Asset Reconstruction Company, the investigation is still ongoing.
Will the bank go under?
Whenever there is news of a scam in any bank, the first thing the account holders do is hold their breath. But in this matter PNB has said that the situation is completely under control. The bank has clarified that even though this amount is huge, the bank had already made preparations for it.
PNB has made 100 percent provisioning for this bad loan (NPA). If we understand in simple language, the bank had already set aside this much amount from its profits so that even if this money is never recovered, there would be no impact on the health of the bank. 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 scam have an old relationship
Earlier in 2018, PNB’s name had also come up in the much talked about scam involving Nirav Modi and Mehul Choksi. At that time, Letters of Undertaking (LoU) worth thousands of crores of rupees were misused, which shook the entire banking system. However, the present case is different from that. This is a case of irregularities in corporate loans, not trade finance. The matter of relief is that the bank recognized it in time and reported it as per the rules.
Talking about its impact on the stock market, before the news came, a slight decline was seen in the shares of PNB. However, in the last three years, the bank’s shares have given an excellent return of 144 percent to the investors.
