PNB Scam

Effect on banks and financial system:

 At Rs. 11000 crore, this was among the top 10 scams to take place in the country.
The damage done affected multiple stakeholders, to the extent that some are still
suffering the repercussions of this. As soon as the scam came to light, a case was
filed against Nirav Modi by the ED worth Rs. 11000 crore, in addition to the Rs. 280
crore that was filed against him by PNB. In addition to this cases were filed against
23 other individuals related to the case. However, by then Modi and Mehul Choksi
with their families had already fled India. They went through multiple countries before
finding refuge in London, due to the extradition laws there. Nirav Modi was arrested
in London in 2019 and awaits trial in 2020 for the scam. As of now October 2020, the
trial stands adjourned.
 To recover some money, his house was raided in Mumbai and assets worth Rs. 5671
crore were seized by the ED. for the trials, he was summoned multiple times to the
court for which he did not turn up. All the accused who couldn’t flee like Modi and
Choksi were grilled by the CBI for hours for getting details related to the case.
 The ripples of the scam were not only felt in PNB, but had a greater impact beyond
that. The demand for gold fell by almost 20%, affecting the gold prices (for a short
time). Major jewellers like Gitanjali, Ginni and Nakshatra came under the scanner for
this, to the extent that Gitanjali gems shares fell by almost 18%.
 On the stock market, the banking sector has a big impact on NIFTY and SENSEX.
Because of this form of fraud, investors lose faith in investing and question the
transparency of the country's company. The customer was affected by this fraud as
the customers needed to understand the status of their deposited money while the
bank instilled confidence among them that it would uphold its commitments.
 The fraud has affected banks as well. Of the 39 banks listed, the share price of 34
listed banks decreased between February 12 and February 15, 2018, while the
benchmark BSE index lost 1.2%. There are five banks, such as the Indian Union
Bank, SBI, UCO Bank, Axis Bank, Allahabad Bank, etc. As they had given short-term
buyer's credit to PNB, they were directly affected by the scam.
 The fraud had an impact on the Life Insurance Corporation (LIC) which was the
single largest investor and lost Rs 1,400 crore in the last three trading sessions.
 After the details of the scam were made public, the bank's stock decreased by 10%.
Gross NPAs of PNB rose to 18.26% of advances as at 30 June 2018 compared to
13.66% in the same quarter a year ago. Net NPAs rose to 10.58 percent, up from
8.67%.
 The bank crisis also had an impact on the currency exchange rate, as the PNB scam
led to a fall in the exchange rate.

Credit Risk exposure of Public Sector Banks

Sr. No. PSBs Exposure in INR crores
1 Union Bank of India 1920
2 SBI 1360
3 UCO bank 2635
4 Axis Bank 200
5 Allahabad Bank 2400
Source – Bloomberg Quint