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PNB Bank Big fall

By paying the other lenders, only the balance sheet of PNB will suffer in terms of losses while the other banks will not have to make provisions.
The Reserve Bank of India has directed Punjab National Bank to pay the entire Rs 11,300 crore owed to counterparty banks in the alleged fraud involving jeweller Nirav Modi, said two bankers aware of the development. Not doing so could lead to turmoil in the financial markets as the trust factor that’s integral to the functioning of the banking industry will be lost, they said. PNB, which is short of funds, has in turn sought the intervention of the government to sort out the mess, they added.

“RBI as made their stand very clear that PNB is liable to pay dues to peer banks,” said one of the bankers present at the meeting where the matter was discussed. “If PNB does not pay up, it will lead to double provisioning-- both PNB and 30 other banks will have provide for the huge loss.”

By paying the other lenders, only the balance sheet of PNB will suffer in terms of losses while the other banks will not have to make provisions.

Bankers fear that payments from PNB will be delayed and that there will need to be some intervention from the finance ministry on this matter.

“If one bank fails to honour claims of another bank, how will the system work?” said the other banker cited above.
RBI hasn’t responded to ET’s queries.


The alleged fraud is the biggest to have hit India’s banking system and was perpetrated by employees issuing letters of undertaking (LoUs) for buyers’ credit to entities belonging to Nirav Modi and his uncle Mehul Choksi’s Gitanjali Group. As many as 30 banks discounted the bills based on PNB’s LoUs. The fraud, which has been going on since 2010 at the Brady House branch of the bank in Mumbai, came to light in January after an employee who was rolling over the LoUs retired.

PNB has blamed other banks for negligence, stating that there was connivance between group companies of Modi and Gitanjali with executives at its branch and those of overseas branches of those other Indian banks.

PNB said the other banks had violated RBI norms. In a letter to them, PNB said, “Letters of undertaking were opened in favour of overseas branches of Indian banks for import of pearls for one-year period as against the RBI guidelines that stipulate only 90-day timeline from date of shipment. This 90-day timeline stipulated has been overlooked by overseas branches of Indian banks.”

The other banks have rejected this contention.

“The RBI has stated that even in cases where an employee commits a fraud, the bank is liable to honour any commitment that arises as a consequence of the fraud. So PNB cannot avoid this responsibility,” said one of the bankers cited above

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