PNB flags over Rs 2,400 crore mortgage fraud tied to SREI accounts, makes full provision

State-owned Punjab Nationwide Financial institution (PNB) mentioned on Friday that it has reported a borrowing-related fraud of Rs 2,434 crore to the Reserve Financial institution of India, linked to the previous promoters of SREI Tools Finance Ltd (SEFL) and SREI Infrastructure Finance Ltd (SIFL). The disclosure, made in a inventory trade submitting on Friday, underscores the mounting scrutiny on non-performing belongings within the banking sector and indicators the financial institution’s intent to deal with dangerous loans proactively.

The fraudulent publicity features a mortgage account of Rs 1,241 crore for SREI Tools Finance and Rs 1,193 crore for SREI Infrastructure Finance, in keeping with the submitting. Punjab Nationwide Financial institution acknowledged it has made provisions for your complete excellent quantity, reflecting a cautious strategy as regulatory oversight tightens.

Each corporations had been resolved beneath the Company Insolvency Decision Course of, carried out by the Nationwide Firm Legislation Tribunal (NCLT). As per the SREI Group’s web site, SREI Infrastructure Finance entered the business in 1989, primarily as a financier for building tools, however ultimately confronted insolvency proceedings initiated in October 2021.

The Reserve Financial institution of India had earlier outdated the boards of SREI Infrastructure Finance Ltd. (SIFL) and SREI Tools Finance Ltd. (SEFL), citing governance lapses and reimbursement defaults totalling round Rs 28,000 crore. Following the NCLT’s approval of the Nationwide Asset Reconstruction Co. (NARCL) decision plan in August 2023, the boards of the affected entities had been reconstituted.

Punjab Nationwide Financial institution’s provisions as of the September quarter stood at Rs 643 crore, marking a rise each year-on-year and quarter-on-quarter. The lender reported an improved Provision Protection Ratio (together with technical write-offs), which rose by 24 foundation factors year-on-year to 96.91% within the second quarter, a metric carefully tracked by analysts to gauge asset high quality.

Shares of Punjab Nationwide Financial institution closed 0.5% decrease at Rs 120.35 on the BSE previous to the fraud disclosure, in comparison with a 0.4% decline within the benchmark BSE Sensex. The inventory has gained 17% for the reason that starting of the yr.

PNB rip-off with Mehul Choksi, Nirav Modi

Beforehand, Punjab Nationwide Financial institution (PNB) surprised the nation by disclosing a large fraud at its Brady Home department in Mumbai in 2018, initially estimated at Rs 13,500 crore and later revised to about s 13,850 crore. The rip-off was orchestrated by superstar jeweller Nirav Modi and his uncle Mehul Choksi, then managing director of Gitanjali Gems, and went on to turn into certainly one of India’s largest banking frauds.

The fraud was carried out by way of the misuse of Letters of Enterprise (LoUs), a banking assure meant to assist corporations elevate short-term abroad credit score for commerce transactions. With the alleged collusion of financial institution officers, the accused bypassed inside controls, obtained LoUs with out collateral or correct authorisation, and stored the transactions off PNB’s core banking system. Between 2011 and 2017, over 1,200 LoUs had been issued to corporations linked to Nirav Modi and Mehul Choksi, whereas solely a small fraction had been authentic.

A key vulnerability lay within the financial institution’s use of the SWIFT messaging system, which was not built-in with its inside software program. This allowed funds to be routed overseas with out triggering alerts. The loans had been repeatedly rolled over, masking the rising publicity for years.

The fraud got here to gentle in January 2018, prompting PNB to alert the RBI and lodge complaints with the CBI, which quickly launched raids and investigations. The rip-off uncovered deep regulatory and auditing failures and triggered sweeping reforms, together with tighter oversight, higher system integration and stricter controls on commerce finance devices.