Punjab National Bank (PNB), India’s second largest government bank loses more than 20 percent of its market capitalization in a mere span of two days pertaining to US $1.77 billion (Rs.11,000 Crore) Nirav Modi fraud.
On Thursday, share price dropped nearly 12 percent (11.97 percent) to close at Rs. 128.35 after the news went viral and got the Dalal-street apprehensive about the situation.
The billionaire jeweler Nirav Modi is under CBI investigation. CBI said that Nirav Modi and his family schemed with bank officials to illegally acquire 8 Letters of Undertaking (LoU) with no official records.
The massive fraud that started in 2011 came to the lime light when last month Nirav Modi’s companies urged the bank for new loans. With the retirement of the employees helping Modi before, the bank asked for LoU and Modi’s companies stated that they had the facility before. That triggered the bank to investigate and got to know that Modi had never paid the bank.
It is the biggest loan fraud in India so far.
Along with the particular branch of the bank and the employees who helped Modi, internal auditors and even The Reserve Bank of India’s (RBI) inspection and audit team are under inspection.
Today, in a conference call, PNB said that it is trying to fix the issues that it is undergoing and also stated that the situation will be under control within the next six months.
The RBI in its June 2017 Financial Stability Report stated that fraudulent activities in banks and financial institutions is ‘one of the emerging risks to the financial sector.’
The RBI said: “In a number of large value frauds, serious gaps in credit underwriting standards were evident.”