MUMBAI — Punjab National Bank, the second largest public sector bank in India, has detected a $1.8 billion fraud in one of its branches here, the bank said in a regulatory filing to the stock exchanges Feb. 14.
"The bank has detected some fraudulent and unauthorized transactions in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance," the PNB filing earlier said.
It has put the quantum of such transactions at $1,771.69 million (around Rs. 11,515 crore).
The amount of fraudulent transactions is equivalent to eight times the bank's net income of about Rs. 1,320 crore ($206 million).
Following the regulatory filing, the bank's shares plunged drastically and PNB closed the Feb. 14 day's trade at the Bombay Stock Exchange down 9.81 percent.
Meanwhile, Financial Services Secretary Rajiv Kumar confirmed to IANS that a Central Bureau of Investigation probe has been initiated and that 10 PNB employees have been suspended.
The fraud was detected at PNB's Brady House Branch, in south Mumbai, the bank’s second-biggest lending branch in the country, official sources said.
The fraud, which includes money-laundering, concerns the Firestone Diamonds group, from which the CBI last week booked billionaire diamond trader and designer Nirav Modi, his wife Ami, brother Nishal and a maternal uncle Mehul Choksi.
The arrests followed a complaint lodged by PNB Jan. 29 pertaining to an alleged Rs. 280 crore cheating case perpetrated by the four aforementioned people in 2011.
It has been learned from informed sources that Nirav Modi wrote to PNB and other banks, saying he would return the outstanding money.
The latest case, which involves a sum considerably higher than Vijay Mallya’s default of around Rs. 9,000 crore, comes at a time when the Indian banking system is already grappling with swelling non-performing assets.
"Based on these transactions, other banks appear to have advanced money to these customers abroad. In the bank, these transactions are contingent in nature and liability arising out of these on the bank shall be decided based on the law and genuineness of underlying transactions," PNB's regulatory filing said.
The bank's filing added: "The matter is already referred to law enforcement agencies to examine and book the culprits as per law of the land."
Banking industry leader and former Vice President of the All India Bank Employees Association Vishwas Utagi said if this was the scenario of one company pertaining to just one branch of PNB, then the situation was "truly alarming."
"The CBI and other agencies must investigate all the members of PNB's Credit Approval Committee and the board of directors since such scams cannot take place without connivance at the top levels," Utagi told IANS.