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State-owned Punjab National Bank (GNP) on Friday said it had reported fraud related to borrowing of Rs 2,434 crore from the Reserve Bank of India, linked to former promoters of SREI Equipment Finance Ltd (SEFL) and SREI Infrastructure Finance Ltd (SIFL). The disclosure, made in a stock market filing on Friday, highlights the growing scrutiny of non-performing assets in the banking sector and signals the bank’s intention to deal with bad loans proactively.
The fraudulent exposure includes a loan account of Rs 1,241 crore for SREI Equipment Finance and Rs 1,193 crore for SREI Infrastructure Finance, according to the filing. Punjab National Bank said it had made provisions for the entire outstanding amount, reflecting a cautious approach as regulatory oversight strengthens.
Both the companies were resolved under the corporate insolvency resolution process, conducted by the National Company Law Tribunal (NCLT). According to the SREI Group website, SREI Infrastructure Finance entered the sector in 1989, primarily as a construction equipment financier, but ultimately faced insolvency proceedings initiated in October 2021.
The Reserve Bank of India had earlier replaced the boards of SREI Infrastructure Finance Ltd. (SIFL) and SREI Equipment Finance Ltd. (SEFL), citing governance lapses and repayment defaults totaling around Rs 28,000 crore. Following the NCLT’s approval of the resolution plan of the National Asset Reconstruction Co. (NARCL) in August 2023, the boards of directors of the affected entities have been reconstituted.
Punjab National Bank’s provisions in the September quarter stood at Rs 643 crore, marking an increase both year-on-year and quarter-on-quarter. The lender reported an improvement in the provision coverage ratio (including technical write-offs), which rose 24 basis points year-on-year to 96.91% in the second quarter, a metric closely followed by analysts to gauge asset quality.
Shares of Punjab National Bank closed 0.5% lower at Rs 120.35 on the BSE before the fraud disclosure, compared with a 0.4% decline in the benchmark BSE Sensex. The stock has gained 17% since the start of the year.
PNB scam with Mehul Choksi, Nirav Modi
Earlier, Punjab National Bank (PNB) stunned the country by revealing a massive fraud at its Brady House branch in Mumbai in 2018, initially estimated at Rs 13,500 crore and later revised to around Rs 13,850 crore. The scam was orchestrated by famous jeweler Nirav Modi and his uncle Mehul Choksi, then managing director of Gitanjali Gems, and became one of the biggest banking frauds in India.
The fraud was carried out through the misuse of Letters of Undertaking (LoU), a bank guarantee intended to help companies obtain short-term foreign credit for commercial transactions. With the alleged collusion of bank officials, the defendants circumvented internal controls, obtained LoUs without collateral or proper authorization, and kept transactions outside of PNB’s core banking system. Between 2011 and 2017, more than 1,200 LoUs were issued to companies linked to Nirav Modi and Mehul Choksi, although only a small fraction were legitimate.
A key vulnerability was the bank’s use of the SWIFT messaging system, which was not integrated with its internal software. This allowed funds to be channeled abroad without triggering alerts. The loans were rolled over several times, hiding the growing exposure for years.
The fraud came to light in January 2018, prompting the PNB to alert the RBI and lodge complaints with the CBI, which promptly launched searches and investigations. The scam exposed serious regulatory and auditing failures and triggered sweeping reforms, including stricter oversight, better systems integration and tighter controls on trade finance instruments.
