An Analysis of Financial Fraud through PNB Bank
Scam and its technical Implications
Dr.Gurinder Singh Dr.Shalini Srivastav
gsingh@amity.edu ssrivastav@gn.amity.edu agupta1@gn.amity.edu vgarg@gn.amity.edu
Amity University,U.P. Amity University, U.P. Amity University, U.P. Amity University,U.P
Abstract
The government is looking forward for the betterment of
banks and coming out with various new schemes, the PNB
scam came as a huge blow to the entire banking sector and
brought almost everything on a stand still. This 11,700-crore
scam involved more than four banks which is a big question
mark on the financial safety of banks. This scam was almost
five years old and was not detected by anyone. Therefore,
there are serious questions on the internal operations and
auditing processes of the bank and also a the main regulatory
body RBI is also under serious mode of self-check. This case
study aims to identify and analyze the major factors that led to
this huge scam and also tries to detect the involvement of
various businessmen who has created an impact on the
economy as a whole.
keywords: Fraud, Overseas bank, Letter of understanding,
Swift, Nostro account, Audit
Introduction
Punjab National bank is involved in a major scam of above
₹11,000 crores by issuing a certain type of bank guarantee in
a wrong way to a businessman by the name of NiravModi.
NiravModi is a businessman who is having a very famous
jewellery business. As per the statement given by CBI
(Central bearer of Investigation) he issued fake Letter of
Understanding (LOU) from Punjab National Bank (PNB) and
takes loan from foreign banks of more than ₹11,000 crore
rupees.[1] Punjab National Bank was associated with three
alleged firms majorly Diamond R Us, M/s Solar Exports and
M/s Stellar Diamonds. In simple words, a Letter of
Understanding is a letter which is issued by the Indian bank
to those people who are taking loans from foreign banks , and
in case if the concerned individual is not able to pay its loans
to the foreign bank the Indian bank will pay to the foreign
bank on behalf of that individual.
NiravModi company names as Gitanjali Gems has issued
LOU from PNB in eight different ways and bluffed these
foreign banks and taken loan from them. These loans were
taken during 2011 to 2017 .These foreign banks are actually,
Indian banks with their overseas branches. Now when these
foreign banks are not able to get their money on time from
NiravModi then they contacted PNB and asked him that since
they have issued a LOU, therefore on the basis of that you
should repay the loan on behalf of NiravModi.
PNB after checking the LOU’s realised that it was not issued
by the bank and it is a fake document .As a result PNB filed a
complaint to the CBI complaining about the fraud. Besides
this, it was quite clear that since PNB has issued a LOU to the
bank, then there are some bank officials who are also involved
in it and are playing a major role in this process. After
investigation two people were find accused, Gokulnath Shetty
and Manoj Kharat. Besides this NiravModi ‘s entire family is
involved in the fraud ,like NiravModi’s wife Ami Modi
brother NeeshalModi and his uncle MehulChoksi .All these
names were clearly mentioned in the complaint registered to
CBI.. On the other hand Hari Prasad –a whistle blower has
Dr.Anubhuti Gupta Dr.Vikas Garg
informed about the scam to everyone. Hari Prasad says that he
detected a huge fraud in Gitanjali Gems in 2015 and alerted
several authorities including ED, CBI and PMO but received
no response.
One of PNB official after detailed investigation has informed
the CBI agency that majorly the culprit was the banks ,
Mumbai branch located at Brady house in Fort and their two
more employees who are majorly employed are
GokulnathShetty , who is the retired deputy Manager of PNB
and Manoj Kharat , who is a single window operator issued
illegal LOU’s to the creditors who are based in Hong Kong
majorly on behalf of the three firms which are mentioned
above which are collaborated with NiravModi and Gitanjali
group. Gitanjali group is one of the biggest branded jewellery
stores in the world. It has it’s headquarter in Mumbai and sells
its jewellery all over India. These people took illegal
advantage of its official position in the country and wrongfully
deal with people and took advantage of these organisations
Diamonds R US, Solar Exports and Stellar Diamonds and
made a yearly loss of around Rs.280.70 crores to PNB during
the last year 2017. This information is on the basis of First
information report released by the CBI. .
This case study is about understanding major fraud in PNB
and will also try to discover the reasons behind a fraud of
approximately₹114,000 millionin one of its Mumbai
branches.
Literature Review
Punjab National Bank (PNB) is one of major leading
government bank in India. It is the oldest bank which provides
financial support to customers in various services like,
agricultural finance, personal banking, Industrial finance,
corporate banking, and trade financing and International
banking in various other forms. PNB was established in 1895
.In the initial days it has a slow start over hundred years ago ,
but in last few years the bank has grown to a position to
become one of the leading banks in India and is also having a
good position abroad majorly in North Korea [2]
PNB is considered as the second largest public sector bank in
India with more than 4,600 branches all over India with
various offices working efficiently for years and also it has set
a benchmark in the history of Indian banking system by
initiating and implementing the Core banking solution or
CBS. This bank has successfully completed its task much
before its targeted time frame and implemented it in March
31st, 2009.
RIS Sidhu , the chief general manager – IT ,PNB once in his
statement to a press conference said on 5 th Feb ,2009 that now
PNB has become a core banking system in totality or 100
percent. It is so active that it works all over India, like if a
customer is depositing Rs.100 in any of its branches, it will
automatically be posted in its servers in Delhi and nearby
areas. Hence, it proves to be a leading bank in India.
Objectives of study
 To make people aware about the PNB issue and also to
providing the correct information about the issue.
 To study the impact of scam on stock market, banking sector
and jewellery sector.
Research Methodology abroad parties. A Nostro account is the
record an Indian bank (here, PNB) has
5W2H tool is used for analysis of the bank scam. The scam with an abroad bank.
came in news in the month of January in 2018.Newspaper 1. PNB is left holding bank ensures
articles published between January to March 2018 and all worth Rs 11,400 crore which it needs
national and international periodicals were reviewed. to pay to, among others, State Bank of
Relevant data related to bank stock market was obtained from India, Allahabad Bank and Union
Sensex and other related data was taken from other financial Bank. These installments are expected
information News Company like Bloomberg. over the next few months.
5W2H is a quality management technique which focuses at
investigating the issue with the point to arrive at achievable What is the
2. This has influenced the financial
solutions. This assessments the issue in parts and subsequently scope
division, dornments segment and the
takes after the different and manage everything. This tool has protection segment.
any kind of effect in grabbing a reasonable perspective around
the various constituents of an issue and along these lines has 3. This additionally questions the
any kind of effect in making progress the for the most part believability of the Public Sector
handle. When working on improving a process this is a very Banks, the job of controllers in
simple tool to help think thorough improvement opportunities. particular RBI and SEBI
When? PNB recorded an extortion grumbling
Detailed Analysis of the issue by 5W2H against Modi bunch firms with RBI on
29/01/18.
5W2H stands for 5 Ws and 2Hs: O4/02/18 :CBI issues lookout notice
1. WHO: Who is/will be responsible for the thing? Can against NiravModi
we decrease the number of people involved? When did it
05/02/18 : PNB advises stock trades
2. WHAT: What is done in the step? Can some steps can happen?
about the Rs 281 crore
be reduced? Misrepresentation from the Modi
3. WHEN: When did it start and finish? Can it involve group.
lesser time? 14/02/18: PNB tell the stock trades of
4. WHERE: This defines the place of occurrence. Can it the size of the Fraud.
occur somewhere else? As indicated by the FIR, two junior
5. WHY: Why it should be done? What is the need? representatives of PNB had been
6. HOW: How it should be done? Can it be done in sending these unapproved guarantees
another way? for a long time.
7. HOW MUCH: How much does it cost? Can the cost be At that point one of them resigned. In
reduced? When did it January, when delegates of Modi
start? firms requested a new guarantee, the
TABLE 1: Analysis of the scam by When did it new PNB worker in that position
5W2H stop? requested guarantee security. On
What? On 14 February 2018 , state-claimed being informed this was never
Punjab National Bank (PNB) requested before, the bank began
unveiled that it has found $ 1.77- researching and found
billion (around Rs 11,400 several guarantees associated with
crore) worth of false exchanges at one these organizations
of its Mumbai This issue had been going on for as
What Branches. In a grumbling to the far back as seven years with regard to
happened? Central Bureau of Investigation, the NiravModi case. PNB had likewise
bank had named the organizations and Is it been influenced by the Winsome
individuals related with very rich continuous Diamond group scam in 2013.
person diamond merchant r Nirav problem? With regards to frauds, it isn't new to
Modi to have caused this huge the financial sector as it has seen
misrepresentation utilizing the bank Intermittent? various degrees of scams at various
guarantees occasions. Thus this is a constant
What is thePNB workers gave counterfeit LoUs(In issue.
problem? global banking framework, Letter of
Undertaking (LOU) is an arrangement Is it linked to The PNB Scam all things considered
of bank ensure, under which a bank a specific is connected to Nirav Modi, the
enables its client to fund-raise from customer tycoon in this debate, is an
another Indian bank's remote branch as usage? extravagance precious stone gems
a short term credit. The LOU fills the merchant who was positioned #57 in
need of a bank ensure), on the back of the Forbes rundown of India's tycoons
which remote parts of a couple of in 2017. He is the organizer and
Indian banks — counting Axis and imaginative chief of the Nirav Modi
Allahabad Bank — gave dollar credits chain of precious stone gems retail
to PNB. These outside money locations, and is the Chairman of
advances were utilized to subsidize Firestar International, the parent of
PNB's Nostro accounts and from these the Nirav Modi chain, which has
records subsidizes moved to certain stores in key markets over the globe.
 The organizations have Nirav Modi,
his sibling Nishal Modi, Mr. Nirav's
spouse Ami Nirav Modi, and Mehul
Chinubhai Chokshi as accomplices.
The inner financial framework isn't
deliberate and is inclined to deceitful
exercises. PNB is currently liable for
Why is it athe misrepresentation sum. The clients
problem? are frozen that their cash in the bank
Why? might be under hazard while the bank
has guaranteed to respect all its true
blue responsibilities.
It is mandatory to have the standard
Is it a must or
operating system of responsible and
nice to have?
responsive banking.
PNB has confronted the issue adding
up to 11,400 crores. Concurring to
Who faced banking circles, PNB should profit
the problem? despite the fact that actually
Allahabad Bank and Axis Bank took
the exposure.
Who
The scam was detected and reported
reported the
by PNB to RBI and CBI.
Who? problem?
Customers of the Bank, Employees,
Who are the Board of Directors, Auditors,
stakeholders? Creditors, SEBI,RBI(Regulators), The
Government of India
Ex- employees of PNB who issued
Who are the
the money, Nirav Modi and
parties
Allahabad and Axis bank who
involved?
honoured the payment
Where did it It did happen within the PNB’s
happen? operations.
It could be named as in house in light
of the fact that the quick exchange on
Is it in-house demand was cleared by the PNB
or at authorities. Consequently we have an
customer? inquiry on the legitimacy of the
framework for Letter of Credits at
PNB.
Where?
The two representatives of PNB
legitimately utilized SWIFT - the
worldwide money related informing
Where is the administration used to move a huge
stakeholder’s number of dollars over fringes each
location? hour — and avoided the center
financial framework (CBS) which
forms day by day banking exchanges
and posts refreshes.
Which other
The information exchange between
location
Which? CBS and Swift transactions has to be
should be
reviewed.
considered?
How? How many Letter of credit,Letter of
parts were Undertakings(which were faked),
involved? Swift Network
How much is
12,000 crore
the loss
How did itOperational risk (OR) indicates a
happen?(step failure in any of the banking systems,
by stepprocesses or people.
explanation) A significant operational hazard had
happened at PNB.
Two bank authorities of PNB had been
giving Letter of Credits for a
significant stretch to Nirav Modi with
no security, which produced a fraud of
Rs.11,400 crores. The quick informing
framework had circumvent the center
financial framework and worked.
There is not one or the other
appropriate interior coordination nor
any inward control or observing
process. This has brought about the
operational hazard.
Thus 5W2H helped to understand the entire issue. We assume
that there is an importer who buys goods and services from
other countries , in case of PNB we can name him NiravModi
. This importer wants to buy diamonds and pearls and then sell
it in his own country or any other country to earn profit. This
purchase requires a large amount of money and in that case
the importer Mr.NiravModi approaches a bank which is
named as Punjab National bank (PNB).
PNB: In lieu of your requirement we can provide you loan in
₹ an interest rate of 10%
NM: I think the amount of interest is too high for me .Anyway
all my purchases are in dollars so in that case, I would prefer
if I could get a loan in foreign currency.
PNB: Yes! It is possible.
NM: So, in that case which bank will provide me the loan in
foreign currency as I don’t know any one abroad and also they
don’t know me...? Neither have they had my financial history
of past records nor any guarantee.
You are my banker so can you provide me some kind of
guarantee?
PNB: Yes, we can provide you a guarantee by issuing a Letter
of undertaking (LOU) on your behalf.
NM: What is Letter of Undertaking (LOU)?
PNB: A letter of Undertaking is a letter of credit which is
issued by one bank which provides an option to the other bank
to pay money to the supplier of the previous banks customer.
For eg Dena Bank is transferring money to the supplier of
PNB ‘s customer by the help of NOSTRO Account which
PNB holds in previous Dena bank outside the country.
.NM: Great!! So, please help me by issuing a Letter of
Undertaking (LOU) for my loan purposes.
PNB: We can issue you a (LOU) on some conditions.
NM: What are those conditions?
PNB: Condition is that if you are willing to take a loan
amount of say Rs.100 crores then in that case you have to pay
us something of worth Rs.100 crore as collateral.
(But as per the existing scenario PNB was not able to take the
collateral amount of Rs.100crore from Mr.NM due to certain
negotiations made by him or any benefits which the bank can
enjoy or any other reason which is not known and the bank
issued a LOU to Mr.NM and that was the turning point of the
fraud game.)
PNB: We will send the message to the concerned foreign
bank by the help of SWIFT and if accepted by the foreign
bank, they will transfer money to our NOSTRO account.
(SWIFT is known as Society for the Worldwide Interbank
Financial Telecommunication, it is founded in Brussels in
1973. It is a cooperative body prepared for smooth global
financial transactions and global interactivity to maintain a
strong global communication for international financial
transactions. In other words it is the message service which is
used by banks to transmit messages from one bank to another
bank. It is a written message in stone which declares that in
case of any mishap or default PNB will be held responsible to
pay the entire amount. This society contains a messaging
service for various financial messages such as payments ,
 letter of credit and transactions of security with all the banks
across the world, Majorly , it is into delivering messages from
one party to another.)
(NOSTRO account majorly refers to an account that a bank
normally holds in another bank in foreign currency.” Nostros”
is a Latin word which means “ours” in English and is
normally used to help and support foreign trade transactions.
Another term opposite to it is “VOSTRO “ is a Latin word
which means “ yours ”in English which states that what kind
of accounts these banks are having in its home currency. )
With reference to this case, it is an account which PNB
maintains with foreign banks where these banks will send
money for PNB customers. Both these accounts are two hands
of a clock with different viewpoints.
For example, Bank X has an account with Bank Y in Bank Y's
home currency. To Bank X, that is a nostro, meaning "our
account on your books," while to Bank Y, it is a vostro,
meaning "your account on our books." These accounts are
used to facilitate international transactions and to settle
transactions that hedge exchange rate risk.
Figure-1 Model of PNB process of Money transfer to other
banks- By AshishJajodia, March 27, 2018 [3]
As per the above mentioned transactions, it becomes clear that
the foreign bank is giving money to Punjab National bank as it
is transacted by PNB’S Nostro Account. In other words,
Mr.NiravModi who is purchasing diamonds from this amount
is not in any contact with the foreign bank.
The foreign banks don’t know Mr.NiravModi and they are
only aware about the guarantee given in the form of (LOU) on
the SWIFT message service. [4]
Thus, Mr.NiravModi has a full chance to commit fraud, which
is due to carelessness of PNB bank.
The hard reality!!
 Mr .NeeravModi has not paid any amount to PNB. The money
was intentionally used for some other purposes.
 He played a ball game by rolling the bank’s money itself to
repay his loan by taking another loan from the bank.
Suppose, he had a LOU of say ₹ 10 million, then he issued
another LOU of ₹ 11 million in order to cover the loan
interest on first. Therefore this money is used to repay the loan
amount of the first and so on.
How it worked?? - Mr.NiravModi took loans from various
foreign branches of various Indian banks by issuing guarantee
in the form of LOU from PNB. This LOU is issued by SWIFT
message service of PNB .These business transactions are
never shown in the banking system at the time of monitoring
of banks financial accounts called as CBS or Core banking
system. [5] As a result these LOU’s were issued by the PNB
from time to time and this process started in 2011 which kept
on increasing from time to time. These letters were issued by a
rouge employee or employees of PNB from past many years.
This alleged official like, Gokulnath Shetty etc retired in 2017,
and as a result a new officer joined and he has his own
rules .He refused to roll over the old LOU for the year 2018(6)
.His main point of concern was that he was not able to
calculate the past transactions in his current financial record.
He questioned on Mr.NiravModi’s financial transaction and
said that since there is no fund then why he needs all over. No
rollover means a default, since there is no money to pay. [6]
As a result PNB files a FIR against this case , just to check
how much they have actually lost in year 2018 .It is recovered
that it is Rs.280 crores that they lost by the letter of
Undertaking or LOU. Further it was detected that the loan
amount was increased to Rs.11, 400 crore. This web link tells
us about the First Information Report (FIR) lodged by
PNB. .After detailed investigation it came out to be
12,700cr.or 1.27 billion approximately. But by the time this
investigation is done, it was already very late and PNB was
under the crisis situation. Mr .NiravModi’s has never intended
to pay back the money ever otherwise there would have no
need to roll back the LOU year after year. In order to hide him
Modi was asking for rollovers so that his records can be
shown clean. Thus it worked for NiravModi.
Who’s at major fault??
PNB - can be either Yes or No, because: They should have
followed the rules and policies properly given by RBI. They
should have taken the collateral amount form Mr.Modi as per
the LOU on priority.
If the collateral amount is there the bank would have been able
to recover its dues easily by selling the collateral and paying
the foreign bank. PNB or any other government bank in
normal cases , provide LOU’S in the form of guarantee for the
amount which is comparatively larger than the amount taken
in the form of a collateral from the concerned party due to
professional relations and goodwill of the organisations in the
society .This is practically done by almost every bank in India.
Majorly banks provide two types of loan “Fund based limit”
and “Non fund based limit. [7]
Major Features of the policy are:
1. a) The Group Medi claim Policy is available to any
Account Holders or Employees of Punjab National Bank
(PNB).
b) The group policy is issued as per IRDA guidelines, in the
name of PNB (called insured) with a list of names of the
Account Holders or Employees of PNB including his/her
eligible family members as per the following definition. [8]
2. Definition of Family as per the policy says that, family
includes mainly the PNB account holder or the employee,
along with their wife or husband, two children who are minor
and dependent on their parents.
In case of adopted children they should be more than 3 years
of age.
3. The policy reimburses reasonable and necessary expenses
of Hospitalisation and / or Domiciliary Hospitalisation
expenses as detailed below only for illness / diseases
contracted or injury sustained by the Insured Persons during
the policy period up to the limit of Sum Insured.
4. Cash less Facility is available in the Network Hospitals
through the appointed TPAs of the company.
This type of loan was a Non fund based limit loan, therefore in
exact sense it means that bank is only liable to pay, if the other
party defaults or any event occurs in a way that the LOU
issued by the bank is considered to be wrong or invalid. Thus,
in that case the chances of a bank to be considered guilty is
very less, because companies are liable to pay their loan
themselves.
This is an alarming situation in the banking industry
where majorly public sector banks have to work on.
 Banks do not keep a collateral amount against non fund based
limits for importing customers so even if the bank has
collateral it cannot serve any purpose.
 In the case of PNB Bank, it is not revealed to the public that
they are funding massive amounts of non fund based amount.
 It is also found from certain sources that even when PNB
declared a scam of Rs.11, 000crore they filed an FIR for only
Rs.280 Crore with CBI. This news has changed the view point
of Indian customers against PNB.[9]
The main lookout from the above points is that it is not PNB
who is following these guidelines but there are other banks
who are actually working on the same policy as well.
Therefore, it is essential to start checking that how many
NiravModi’s exist even today in other banks.
Also, the major issue is that all the non fund based limits have
no collateral limit to support it. If government is asking all the
non fund based limits of the bank and they are also required to
match it with the collateral amount against them in that case
the amount funded will be extremely high. A huge number of
importers of commodities are following this for years and they
all are rotating credit.
The Enforcement Directorate ( ED ) on Tuesday dated 6 th
November 2018 has declared in its current investigation that
NiravModi is having 11 properties which is costing ₹ 56
crores along with the PNB fraud case which is already of 2
billion USD. Moreover , the Central probe agency declares
that all the assets where under the name of “Modi” and his
company by the name of M/s Firestar Diamonds and at that
point of time it is having a market value of 7.79 million USD
which is almost considered to be ₹ 56.8 crore .[10] After
being exposed to the government the ED has issued a
provisional letter under the Prevention of Money laundering
Act for arresting all those assets, as the agency is under the
process of attaching various assets in the month of October
which is worth ₹637 crore, which consists of two apartments
at Iconic Central Park in Newyork belongs to Modi and the
members of his family.
The ED has become active because ED will be getting
multiple judicial requests and letters for legal attachment of all
these assets of Mumbai with its other counterparts in Dubai.
As soon as these letters are issued India will be able to reduce
injustice and can keep a check on all the foreign assets which
are the part of criminal matters in any global legal
organisation Modi is continuously escaping the bank’s illegal
activities, by the time the biggest bank fraud in the country
was in limelight in the month of February this year and as a
result an arrest warrant is declared to catch him when found. It
is found through sources that he is in UK, when last checked
and govt is working against him. [11]
Various agencies have reported that almost ₹700 crores of
money is in India even today of Modi and his family. They
have also filed various charge sheets against this jeweller ,
informing and putting allegations that he has over ₹6,400
crores of bank money which is earned illegally and invested
in dummy and fraud companies abroad and are control by his
family. [12] Not only Modi there are also other people who
are equally involved like , his uncle MehulChoksi who is
already a criminal in terms of law , has already cheated PNB
more than over ₹13,000 crores with involvement of some
other or lower workers.
According to a special report on “ Impact of banking
misappropriation on Trade and Industry ” on 6 th August , 2018
, the chair of Standing Committee on Commerce Mr.Naresh
Gujral mentioned that normally various industries are using
different financial borrowing instruments for trading
purposes , like Letter of Credit (LoC ) . Letter of Undertaking
(LoU) and Letter of Comfort .As a result; it is observed by the
committee that banks are under detailed investigation as it is
found that the banks are having a very high level or a high
amount of fraud in terms of financial transactions. [13]
As a result of which the Reserve Bank of India has started
taking various precautionary steps regarding trade financing to
reduce fraud in banks which are having great impact on
various industries and trade in the country.
Reserve Bank of India Deputy Governor HR Khan, talking at
a meeting, mentioned that the circulation of a large sum of
cash in the market results in many issues, including
corruption. Recommended treatment was to go into a system
where payments were less in cash. As well as reducing
corruption, this kind of move will resolve transmission
problems of policy in addition to cash management problems
in the banking program. In a recently concluded research
performed by the India Development Foundation (IDF), it was
claimed that, in addition to these, the shift towards a less cash-
utilizing market will result in an improvement in financial
inclusion, more electronic document-keeping of trades, a
decrease in the prices of transactions and support greater
increase. [14]
Some of the major observations of the committee include:
Discontinuation of LoUs and LoCs: The first step to reduce
banking fraud is to discontinue the issuance of various LoU
and LoC which is effective from March 2019. It is suggested
by the committee that these LoU and LoC is used as a cheaper
medium of raising funds which is very effective for short term
credit transactions in foreign currency. Almost all the
industries and federations and various organisations ate not
considering these LoU and LoC as instruments which can be
issued illegally and can be a part of financial fraud. Due to this
decision by the RBI of discontinuation was a shock and a big
jerk to various illegal financial transactions and since it is
most widely used medium of business transactions, it is
decided it revive all such instruments with proper
precautionary safeguards.
Collateral requirements for issuing LCs
The committee has decided that banks are considering very
high collaterals which are between 35percent to 50 percent in
the current situation which is much more than previous levels
of 15percent to 25 percent respective .Higher levels of
financial requirements can result in fund diversion and can
create an impact on industry competitiveness. In order to
avoid this it is suggested that the RBI can specify their
collateral requirements to issue LCs and bank guarantees to
MSMEs.
Is also been observed that many banks are not taking care of
various business transactions related to various countries like
Syria , Sudan , as they are kept under sanctions by United
States of America (USA) . It is also noted that these sanctions
are not applied in export import trade activities of
pharmaceuticals and food products in these countries
Impact on Stock Market
There are all thirty nine banks which are listed in India. All
the share prices of all the 34 banks which fell between Feb 12
and Feb 15. The sudden change in the stock prices have
changed the market capitalization of all these thirty four
stocks by a maximum of Rs.36,380 crores.As per the
benchmark of BSE Sensex there is a loss of 1.2 percent .PNB
has spoiled the investors wealth of Rs.8,077 crores and its
stock has reduced 20.6 perceent in between Feb 12 and Feb
15, 2018.
Impact on banks
The values of all the illegal transactions of PNB are majorly
50 times more than the banks third quarter financial year 2018
with a net profit of Rs 230.11 crores.There are normally 5
banks which are most affected with the PNB fraud and illegal
transactions as they all have issued credit on the Letter of
understanding issued by PNB.These banks are UCO bank ,
Allahabad bank, Axis bank , Union bank of India and State
Bank of India. Table 2 shows the bank’s exposure to the PNB
scam in crores.
Table 2: Credit Risk Exposure Of Public Sector Banks

S..NO PUBLIC SECTOR EXPOSURE ( Crore )

BANKS
1 UCO bank 2624
2 Allahbad bank 2411
3 Axis Bank 201
4 Union bank 1919
5 SBI 1359

Figure-2 Credit Risk Exposure Of Public Sector Banks

The Rs.11,400 crore banking fraud was illegally penetrated by
various other companies of Nirav Modi and Mehul Choksi
which has a created difficulties for Punjab National bank with
some other banks which later has an impact on other major
entities.
Life Insurance corporation is a single largest investor in all Figure-3 Impact on Jewellery Stocks
the below four organizations namely PNB , Union bank of
India , Allahbad bank is having a major impact on them . Conclusion:
There is a major loss of of approximately 1,200 crore as per As per the PNB fraud we can understand some major reasons
the last three trading sessions on investment in companies. of its failure –
Table 3: Decline in LIC investet due to PNB fraud case a) Systems like SWIFT and CBS should be linked as per the
Changes in current RBI guidelines. All the financial functioning should be
Investment strictly monitored of all the employees and all the employees
Percent
value ( Cr)
S.N Organisatio change in Decline in should be trained to do all kinds of job by initiating job
O n LIC sghare prices rotation in banks.
shareholding
b) The process of marker and checker should be improved so that
13.82 22.18 1215.35 before taking any final decision the process should be
1 PNB authorised in order to reduce frauds.
c) Beyond banks, various other financial institutions should also
Union Bank 13.15 7.33 105.35
2 have a strict policy of giving funds to companies by rigorous
of India
checking in order to avoid fraud.
13.28 10.36
65.72 Bibliography:
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3
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[2] MuntazirAbbas,February 05,2018 ,“PNB Sets Benchmark in Indian Banking
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banking-industry
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know-1814314
Figure-3 Decline in LIC investet due to PNB fraud case [6] Investopedia, Nostro
Some jewellery stocks are also witnessing varied changes in Account ,https://www.investopedia.com/terms/n/nostroaccount.asp
[7] “ PNB other popular products ” https://www.pnbindia.in/PNB-other-popular-
the society with a similar changes after the PNB products.html
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62920705.cms
which leads to 110.60 crores.Another ,Thangamayil fell to
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case-pnb-fraud-11400- crore-scam-ed-cbi-raid/story/270708.html
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fraud-case-mehul-choksi-says-cant-travel-to-india-due-to-mob-lynching-
trend-1793695.html
[11] The Financial Express , November 15,2018 , “PNB fraud case: Can’t travel to
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S.NO Organisation Amount
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threat-to-life-due-to-mob-lynching-trend-says-mehul-choksi-5236402/
P.C Jewellers
1 19.5% 303.00 crore [12] Devesh.K.Pandey ,February 26 , 2018 ,“CBI books UP-based sugar company in ₹ 109-
crore bank fraud” https://www.thehindu.com/news/national/cbi-books-up-based-sugar-
Tribhovandas bhimji
company-in-109-crore-bank- fraud/article22851568.ece
2 zaveri 4.32% 110.60 crore
Thangamayil
3 Jewellery 2% 558.55 crore
[13] Business Line, “ED attaches 11 properties of NiravModi in Dubai”
https://www.thehindubusinessline.com/money-and-banking/pnb-fraud-
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