Banking sector fires up this week: Tata pips JSW, RBI overhauls NPA scheme and PNB unearths Rs 11,400 cr scam


Banking sector is always buzzing. This week, the buzz was louder with Punjab National Bank revealing one of the biggest scams in the industry amounting to fraudulent transactions done to favour the now notorious jeweler importer Nirav Modi and his uncle Mehul Chokshi who promotes Gitanjal Gems.

Before kicking off the bad news, the bad loans in the industry made some positive breakthrough.

In a likely landmark deal, Tata Steel is said to have raced ahead of JSW Steel to buy the assets of Bhushan Steel, which is one of the 12 large corporate defaulters named by the Reserve Bank of India to be taken for resolution under the Insolvency and Bankruptcy Code.

Tata Steel has emerged as the highest bidder for debt-laden Bhushan Steel with a surprise bid of Rs 35,000 crore. JSW Steel, which was the favourite till the end of the race, was second placed with a bid of Rs 29,700 crore.

In a major overhaul, the Reserve Bank of India also revamped the entire resolution mechanism forcing banks to take stricter action against non-performing assets (NPAs) within 180 days for large defaults and also withdrew all the previous schemes.


In the latest action on the Punjab National Bank fraud case, CBI has arrested Gokulnath Shetty then Deputy Manager (now Retired) PNB and Manoj kharat, SWO (single window operator) PNB and Hemant Bhat, who was authorised signatory of the Nirav Modi Group of Firms in the last seven years.

Last week, Indian citizens and market watchers were left stunned with one of the biggest embezzlement of money worth Rs 11,400 crore (USD 1,771.69 million) disclosed by country’s second largest public sector lender Punjab National Bank.
SWIFT and Tripping: How Punjab National Bank’s Rs 11,000 cr scam was operated

It took a retirement to unearth one of the biggest frauds in the banking sector. Here is how a freshly appointed official first noticed the fraud at the Public sector bank in January.

Highlights so far: CBI and ED register fresh FIR. ED has started searches at 50 different places including Lucknow and Patna and also attached

This has raised glaring concerns on the irregularities and lacunae in Indian auditing and banking systems.

Even as RBI has nudged PNB to repay the liabilities to contain the contagion effect, the regulator has not sent any formal directions to the government-owned bank.

Also Read: PNB scam — The plot thickens

Financial and Stock impact

Just when PNB, a state-owned lender, was hoping to come out of the woods with its improved non-performing asset (NPA) ratio, a fraud of about Rs 11,360 crore is likely to pinch the bank’s financials, capital ratios and ratings in this quarter.

PNB lost market capitalisation (m-cap) worth Rs 8,731 crore after shares of the company slumped for the third straight session following the detection of the magnanimous fraud.

Market valuation of Gitanjali Gems went down by Rs 300 crore in the last three trading sessions.

Also read: Did Gitanjali Gems promoter’s clout help dodge SEBI bullet in stock rigging case?

Exposure of banks

Country’s largest lender State Bank of India (SBI) today said it has an exposure of USD 212 million (about Rs 1,360 crore) while Allahabad Bank has an exposure of around Rs 2,000 crore by way of Letter of Undertakings issued by Punjab National Bank to Nirav Modi.

Regulators alert

The Reserve Bank and the Sebi are likely to approach their counterparts in Hong Kong for cooperation in the matter.

Also read: From PNB to Mallya to farm income, India enables corruption

Chartered accountants’ apex body ICAI today said it has taken suo motu cognisance of the mammoth fraud and has sought information from investigation agencies besides setting up a group to study the system issues arising out of the incident.moneycontrol