Shares of Punjab National Bank (PNB) are under scrutiny following the bank's report of a ₹2,434 crore loan fraud to the Reserve Bank of India (RBI). The fraud is linked to the former promoters of SREI Equipment Finance Ltd (SEFL) and SREI Infrastructure Finance Ltd (SIFL).
The state-owned lender disclosed that the fraud involves ₹1,240.94 crore related to SEFL and ₹1,193.06 crore connected to SIFL. PNB has already made provisions for the entire outstanding amount.
Both SEFL and SIFL underwent resolution through the Corporate Insolvency Resolution Process (CIRP) under the supervision of the National Company Law Tribunal (NCLT). In December 2023, National Asset Reconstruction Company Ltd (NARCL) acquired these companies. SREI Infrastructure Finance, which entered the construction equipment financing sector in 1989, saw its board restructured following NARCL's successful resolution plan, which was approved by the NCLT in August 2023.
The insolvency proceedings for the SREI Group NBFCs began in October 2021, initiated by the RBI due to governance lapses and repayment defaults totaling nearly ₹28,000 crore. The RBI had superseded the boards of SIFL and SEFL.
According to a Zee Business report, the loan fraud by the former promoters was discovered following a forensic audit that revealed serious irregularities, including loans extended to connected parties and potential evergreening of borrowings. Evergreening is a practice where new loans are taken out to repay existing ones, which can conceal financial stress in accounts. The SREI group has challenged the forensic audit report, stating that the matter is sub judice.
As of the September quarter, PNB reported provisions of ₹643 crore, an increase both year-on-year and quarter-on-quarter. The Provision Coverage Ratio (PCR), including technical write-offs, rose by 24 basis points year-on-year to 96.91% in Q2, indicating the extent to which a bank's non-performing assets are covered by provisions.
Analysts tracked by Bloomberg have varying opinions on PNB's stock, with 12 having a 'buy' call, 4 a 'hold' stance, and 5 a 'sell' rating. Ahead of the disclosure, shares of Punjab National Bank settled 0.5% lower at ₹120.35 on the BSE, compared to a 0.4% fall in the benchmark BSE Sensex.
This incident has triggered memories of the Nirav Modi–Mehul Choksi scam, where PNB suffered losses of approximately ₹14,000 crore. While this is an unrelated case, it brings attention to the effectiveness of internal checks, fraud oversight, and risk management within public sector banks in India. This situation highlights the ongoing challenges of addressing legacy banking frauds.
