Security & Fraud

Punjab National Bank Faces Third Major Fraud In As Many Years 

Punjab National Bank shares fell by nearly 6 percent late Thursday (June 9) after it was defrauded $491 million by one of its customers, The Wall Street Journal reported.

The failed loan was granted to mortgage lender Dewan Housing Finance Limited, which has faced its own financial troubles, the Journal reported.

In a filing with the Securities and Exchange Board of India, the country’s second largest state-owned lender said it had reported the Dewan Housing loss to the Reserve Bank of India, the nation’s central bank.

Punjab National failed to provide details of the alleged fraud and declined to comment, the Journal reported.

The incident has spotlighted a series of bad loans and too few controls that would protect lenders from misconduct that plagues the country’s financial system, the newspaper reported.

If this sounds familiar, this is the third time in as many years that Punjab National Bank has faced such a crisis.

Last summer, the lender revealed it had been defrauded $556 million from a struggling borrower, Bhushan Power & Steel.

Punjab National Bank filed complaints with the Reserve Bank of India and contacted police after discovering Bhushan’s involvement with the loan.

The bank was doing a routine audit of its dealings with the company when it came to light that it was scammed. At the time, Bhushan was dealing with its own debt issues in bankruptcy court.

“The company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks,” Punjab National Bank said at the time.

In 2018, Punjab National revealed fraudulent transactions allegedly undertaken by two jewelers totaled as much as $2 billion. Billionaire Nirav Modi’s Firestar Diamond, the country’s largest jeweler, which was accused of involvement in the potential fraud case, filed for Chapter 11 protection.

Firestar faced accusations of manipulating bank insiders and blind spots to borrow billions without the proper approval from the bank, or even most knowing about it, the Journal reported.

The Reserve Bank of India called the diamond company fraud case a lack of internal controls.

Earlier this year, the central bank seized control of private lender Yes BankLtd., citing a serious deterioration in its financial position, the Journal reported.

 

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