Punjab National Bank hit by second huge fraud

Punjab National Bank hit by second huge fraud
The entrance of Punjab National Bank’s Brady House branch in Mumbai. Photo: AFP

After the infamous Nirav Modi scam, PNB has reported a $556-million fraud by Bhushan Power & Steel

By KS Kumar 9 July 2019

The Punjab National Bank in India, which was hit by a massive US$2-billion scam last year, has reported a second huge fraud by borrowers – disclosing a 38-billion-rupee ($556 million) hole in Bhushan Power and Steel Ltd’s account.

India’s fourth-largest bank informed the Reserve Bank that Bhushan Power and Steel staff misappropriated bank funds and manipulated account books to raise funds from a consortium of banks.

Later, in a regulatory filing, the lender said its total exposure to Bhushan Power and Steel was just under 44 billion rupees, but more than 85% of that sum has been classified as fraudulent, LiveMint reported on Monday.

Bhushan Power and Steel, which defaulted on a 477-billion rupee ($6.93 billion) loan to various banks, was among the first 12 companies referred by the central bank to a bankruptcy court for a debt resolution process under India’s new insolvency law.

During the insolvency proceedings, JSW Steel emerged as the top bidder for the debt-laden company. It offered an upfront cash payment of 193.50 billion rupees ($2.8 billion) and an equity infusion of 3.5 billion rupees ($50.87 million). The bid is awaiting approval from the National Company Law Tribunal.

33 other lenders exposed

Apart from Punjab National Bank no other bank has so far come up with fraud allegation, but industry experts claim other banks in the consortium may also be affected because 33 lenders have exposure to Bhushan Power and Steel.

Punjab National Bank has made provisions for 19.3 billion rupees ($281 million) in the case of Bhushan Power & Steel, according to a stock exchange filing.

In April, the Central Bureau of Investigation registered a case against Bhushan Power and Steel and its directors in a bank fraud case. It was alleged that the company through its directors and staff, fraudulently diverted the loan accounts from Punjab National Bank, Oriental Bank of Commerce, IDBI Bank, and UCO Bank into the accounts of various companies and shell companies without any obvious purpose and thereby misused the funds.

The investigating agency had named company chairman Sanjay Singhal, vice-chairman Aarti Singhal, along with directors, as suspects in the case. It was further alleged that the company utilized loans from 33 lenders between 2007 and 2014.

Investigators had put the bank loan fraud amount at 23.48 billion rupees ($356 million). But, it is now expected to be much bigger, as Punjab National Bank has alleged fraud of over 38 billion rupees.

Diamond merchants

This is the second biggest scam that Punjab National Bank has reported in recent times. In January last year, the bank had found that diamond merchants Nirav Modi and his uncle Mehul Choksi defrauded PNB of nearly $2 billion.

Both Modi and Choksi fled the country after news of the scam broke. It later came to light that Modi was in London and Choksi in Antigua.

The Indian government is trying to extradite both to face trial.

After a request from the Indian government, the UK government had arrested Modi. Currently, he is in a jail in London and facing an extradition hearing.

Meanwhile, the Antigua government has assured that Choksi will be extradited after due legal process.