PNB (Punjab National Bank), the country’s second largest bank, reported last week the scandal involving Rs 11,345 crore to the stock exchange. After this information ( pnb scam ) became public, PNB shares fell to 11 per cent. Apart from PNB, shares of some other banks have also declined. These include both government and private banks. Talking about government banks, the shares of Union Bank of India and Allahabad banks were broken. Private banks have shown its impact on Axis banks’ shares.
Image Courtesy: Hindustantimes.com
PNB Scam Spread Out
In fact, Pnb scam news has spread throughout the stock market. It is feared that more banks may come in the coming days of the scam. At present, the case is being investigated by the agencies like CBI and ED in addition to SEBI.
How did this game begin?
You would definitely want to know how this all started? It happened that some Letter of Undertaking (LoU) was issued in 2010-11 in the Mumbai-based branch of PNB. They were issued to some renowned jewelers of the country, whose branches were abroad too. These include Gitanjali, Guinea, Nakshatra and Nirvav Modi.
What is LoU?
First let me tell you what the LoU means? LoU is a letter issued by a bank, through which different branches of other banks can lend to beneficiaries. This is the whole story of the scam that started from here.
Branches of those banks located abroad have issued indiscriminate loans to these few jewelers based on the same LOU. The basis for distributing these loans was only LOU. It is believed that the lending foreign branches did not necessarily look into the fact that the LOUs were genuine or fake. This means it is clear that these loans have been issued in collusion with the jewelers from its foreign branches. Agencies are investigating the matter at this point.
When did the disclosure happen?
The disclosure of the case came when PNB recently informed the scam in the stock exchange. What happened after this, is not hidden from anyone. However, it is being reported that only Rs 1,700 crore of PNB is stranded in this scam. Yet for PNB this matter is more serious because other banks had divided the loan on the basis of LOU of the same bank.
As part of the action, PNB has terminated 10 employees. The case has also handed over the CBI for inquiry. Sadly, this scandal has emerged when the government has already given a huge amount to bail out the banks. In such a situation, the news of the scandal caused a tremendous shock to the banking industry.
Revenue of PNB
Interestingly, in the December 2017 quarter, there was a loss to other banks, while PNB was among those few selected banks, who had made profits. PNB had a profit of Rs 230 crore in the December 2017 quarter. But after the case is exposed, it is believed that PNB’s Fiscal Year 2018 results can be weak.
The government has made it clear that this whole matter should be seen in a different way. As financial services secretary Rajiv Kumar has said that this matter should be viewed separately and its impact is not expected to fall on other banks. There is a whole hope that the names of many other banks can also be added to this. Therefore, the government has asked all those banks to deposit the status report.
This whole case should also be seen in the perspective of insurance. Every bank offers several types of insurance every year from non-life insurance companies. These include insurance against employees’ dishonesty.
Talking about Punjab National Bank, it took from United India Insurance of Chennai. This insurance was taken this year and for the past years. You might be surprised to know that the maximum coverage under this insurance is only 2 crores. United India has 40% share in that too. The remaining 60 percent stake is of three other government insurance companies. These include New India Assurance, Oriental Insurance and National Insurance. These 60 per cent stake is divided into these three companies.
The retroactive policy of this insurance is for two years. This means that these insurance companies will also serve the bank’s claim for forgery during the period of up to two years before the disclosure of the scam.
Whatever the case, the investigation is still pending. Only after that will the insurance companies have to bear its losses. See how the government and regulatory agencies work to tighten the reins so that such cases can be cracked on financial frauds.