PSBs lose Rs 1 trn; PNB scam erodes investor interest spurred by recapitalisation plan 

Over the last five months, it seemed like the Nifty PSU (public sector undertaking) Bank Index was gaining, with increased investor interest on account of the government's recapitalisation plan.However, after the Punjab National Bank (PNB) scam, the indication of possible system-wide fraud has caused the index to fall 22 per cent from its January high, erasing Rs 1 trillion in value.


The government’s recapitalisation plan, announced on October 24, raised the PSU Bank Index to a high of Rs 3,965.60 by January 24. After which, it was stable for a while, each trading session’s closing price being lower than on the previous day.On February 14, the government-owned Punjab National Bank (PNB) revealed some rogue employees had issued letters of undertaking (LoUs) via the SWIFT (Society for Worldwide Inter-Bank Financial Telecommunication) system on behalf of companies belonging to diamantaire Nirav Modi and associate Mehul Choksi.


The bank told regulators its foreign exchange department in Fort, Mumbai, had issued $144 billion worth of fraudulent LoUs since 2011, against which buyer credit was extended by overseas branches of others Indian banks.


These SWIFT messages were sent to the latter without being entered into PNB’s core banking system (CBS); hence, the fraud went undetected for years, the management said.


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