What the government giveth in recap, fraud at PNB taketh away
As if Indian banks’ NPA problem wasn’t bad enough, there are large frauds being reported now as well. Punjab National Bank (PNB) has informed the stock exchanges that it detected fraudulent transactions amounting to $1.77 billion (Rs11,363 crore).
“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,” it said. To be sure, not all of the funds that were transferred out may end up as liability. But even assuming that 50% of the losses needn’t be borne by the bank, it means that the entire benefit of the government’s bank recapitalisation will be wiped away.
The government will issue bonds worth Rs5,473 crore to the bank as part of its plan to bolster balance sheets of ailing public sector banks.
As such, the timing of the fraud is most inopportune. In one sense, it is a mockery of the recap programme.
The markets, meanwhile, seem to be fairly sanguine about the prospects of recovering a large part of the money lost in the fraud. The bank lost Rs4,075 crore in market capitalisation on Wednesday, just over a third of the amount involved in the fraud. Perhaps, investors think the government may increase the recap dosage.