In February last year, state-run Punjab National Bank disclosed that it had been hit by a massive fraud. Companies associated with diamantaires Nirav Modi and Mehul Choksi had found a way to use fake letters of undertaking to defraud banks of over Rs 14,000 crore. It was the largest bank fraud in Indian history.

A year later, Punjab National Bank, which was at the center of the fraud, has just about finished making provisions against what it lost; any hope of recovering the monies remains dim; and lenders continue to eye the gems and jewellery sector with caution.

PNB: Still Reeling From The Hit

For Punjab National Bank, the past year has been about trying to clean the mess left behind by the fraud.

The Reserve Bank of India had given the bank four quarters to make provisions, even though this was not considered best practice in terms of accounting standards. On Tuesday, while reporting its third quarter earnings, the bank said that it had finally finished making necessary provisions against the fraud account.

The total amount of the fraud, including direct and indirect exposure to Nirav Modi and Mehul Choksi related firms, worked out to Rs 14,400 crore, said LV Prabhakar, executive director at PNB. This includes money loaned by other banks against guarantees of PNB. The bank has made 100 percent provision against this amount, Prabhakar told BloombergQuint.

The provisions needed against the fraud amount added to the already elevated provisions against bad loans and led to four consecutive quarters of losses at the bank.