BANK DAWDLES ON REPORTING FRAUD TO SEBI FOR 2 WEEKS

By his own admission, Managing Director of the PNB Sunil Mehta on Thursday revealed that they detected the Rs 11,400-crore Nirav Modi fraud in the third week of January and reported the matter to the CBI on January 29. But shockingly, the bank’s management neither informed the shareholders about the scam in the PNB Board meeting on February 6 nor did it report the matter to the Security and Exchange Board of India (SEBI) for another two weeks.

The PNB may not be obliged to inform the media about the fraud, but suppression of this mega scam from the SEBI and shareholders raises several crucial questions. In normal circumstances, it would be expected that in the interest of shareholders, any such scam must be reported to the SEBI as soon it is detected. Had the PNB reported the matter to the SEBI on January 29, when it filed a complaint with the CBI, the shareholders would have had time to review their investment ahead of the third quarters result on February 6.

The moment the PNB reported the matter to the SEBI on February 14, the scam came in public domain and the shares of the PNB crashed. The SEBI is reportedly upset with the way the PNB suppressed the discovery of the fraud from it. The delay in disclosure could have helped people in the know of the scam offload their position and cut their losses.

Taking cognizance of this fact, the SEBI is likely to probe possible disclosure lapses by banks and other listed companies, including several jewellery firms that have come under the scanner in connection with the fraud. According to reports, the SEBI and stock exchanges would also analyse trading data of these companies and their top officials, some of whom are already under the scanner for insider trade and other violations.

Taking cognizance of this fact, the SEBI is likely to probe possible disclosure lapses by banks and other listed companies, including several jewellery firms that have come under the scanner in connection with the fraud. According to reports, the SEBI and stock exchanges would also analyse trading data of these companies and their top officials, some of whom are already under the scanner for insider trade and other violations.

By suppressing the facts to the shareholders and presenting a bright outlook for the bank, the PNB management took the investors for a ride.

In its result, the bank reported 11.10 per cent increase in net profit at Rs 230.11 crore. The bank had in the September quarter recorded a net profit of Rs 560.58 crore.

The bank claimed in its result that as on December 2017, Gross NPA ratio fell to 12.11 per cent from 13.31 per cent at the end of September 2017. The Net NPA ratio declined to 7.55 per cent in December 2017 from 8.44 per cent in September 2017.

Even though he was fully aware of the mega scam, the PNB managing director presented a rosy outlook about the bank’s finances, saying, “We are confident of achieving our earlier specified guidance of overall credit growth of 10 per cent for the entire fiscal.”

Based on the company’s third quarter result, prominent brokerage firm Prabhudas Liladhar recommended a hold rating on PNB with a target price of Rs 176. In November last year, another brokerage firm Motilal Oswal had given buy rating on PNB with a target price of Rs 250.