PSU banks continue to bleed after more lenders report exposure to the $1.8 billion PNB fraud, involving billionaire jeweller Nirav Modi

Listed Indian banks have lost over $10 billion (Rs67,800 crore) in market capitalisation after the $1.8 billion fraud at Punjab National Bank (PNB) came to light. PSU banks continued to bleed on Monday, after more lenders reported exposure to the scam.

PNB reported on Wednesday that it has detected a scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking (LoUs) from a branch in Mumbai to secure overseas credit from other Indian lenders.

UCO Bank on Saturday said it has an exposure of $411.82 million to PNB’s Nirav Modi LoUs. Earlier, State Bank of India and Allahabad Bank disclosed Rs1,360 crore and Rs2,000 crore, respectively.

“We believe such instances of fraud and further pressure on asset quality will be an overhang on valuations for PSU banks,” Edelweiss Securities Ltd said in a 15 February note.

Analysts believe the fraud will lead higher provisioning and may further impact the profitability of banks, which are already struggling under mounting non-performing assets (NPAs).

“The amount involved is substantial (cumulative gross exposure relating to fraudulent transactions is $1.8 billion), but more worrying is the stark process lax and repeated instances of similar frauds (Winsome Diamond, etc). PSU banks continue to grapple with weak systems, raising questions on why the processes are not centralised, unlike most private banks where bypassing CBS is not easy,” Edelweiss report added.

PNB shares have fallen 25% since the scam was reported, eroding nearly Rs9,850 crore of its market cap. State Bank of India lost Rs17,780 crore in market value. Among private banks, Axis Bank, Yes Bank and ICICI Bank lost nearly Rs8,130 crore, Rs5,845 crore and Rs3,210 crore, respectively. The PSU Bank index slumped nearly 10%, while BSE benchmark Sensex index fell 1.4% in this period.

The Enforcement Directorate has seized gold, diamonds and precious stones worth around Rs5,100 crore from 17 premises of Nirav Modi and Gitanjali Gems and also written to the ministry of external affairs to revoke the passports of all named in the case.

The Central Bureau of Investigation had already issued a lookout notice for Modi, his wife, brother and his uncle, Mehul Choksi of Gitanjali Gems.

source: livemint.com