Punjab National Bank Delayed Red Flagging Rs 3,688 Crore DHFL Loan as Fraud

Government owned Punjab National Bank (PNB) on July 9 said it has reported a fraud of Rs 3,688.58 crore in a non performing account (NPA) of Dewan Housing Finance Ltd (DHFL) to the Reserve Bank of India (RBI). The bank’s revelation comes at a time while forensic audit of DHFL books is ongoing alongside the company’s resolution process. 

Observers raised doubts over PNB bank’s delay in reporting DHFL account as fraudulent citing long standing allegations against the housing finance company and several ongoing probes on both the bank and the company. 

“A fraud of Rs 3,688.58 crore is being reported by Bank to RBI in the accounts of the Company (DHFL),” PNB said in a stock exchange filing and added that the bank has already made provisions amounting to Rs 1,246.58 crore, as per prescribed prudential norms. 

Corporate insolvency resolution process of DHFL began in December last year at the National Company Law Tribunal (NCLT), Mumbai bench after the company began defaulting its debt repayment obligations and failed to achieve a resolution plan with its lenders, thus becoming the first financial services company to go for insolvency under Insolvency and Bankruptcy Code (IBC). 

As on March 20, the amount claimed by financial creditors, including banks and non-convertible debenture holders of DHFL, as admitted by the NCLT stood at Rs 81,140 crore. Of this, PNB has claimed Rs 1,222.41 crore. 

“PNB needs to clarify on why it has delayed in red flagging the fraudulent account of DHFL accounts,” said Thomas Franco, former General Secretary of All India Bank Officers’ Confederation, as “suspicions on DHFL transactions have been in public domain for more than a year now”.

Also watch: What Led to the PNB Fraud? Thomas Franco Answers

“This DHFL fraud of Rs 3,688 crore makes its second only to Nirav Modi’s scam within PNB,” Franco pointed out.  

The Central Bureau of Investigation (CBI), which has been probing fraudulent transactions involving PNB bank officials and diamond merchant Nirav Modi and his companies, has estimated the fraud to the tune of Rs 23,780 crore. 

Financial Express in January had reported that three banks — State Bank of India (SBI), Union Bank of India and IndusInd Bank — have red-flagged the exposure to DHFL as fraud accounts. 

Troubles inside DHFL began in late 2018 with the sudden collapse of Infrastructure Leasing and Financial Services (IL&FS) that sent shockwaves across the financial services sector as the company faced liquidity concerns. Following this, in January 2019, investigative news portal Cobrapost had claimed that DHFL had siphoned off Rs 31,000 crore of public money “through grants of loans and advances to shell companies and by using other means”. This prompted the Serious Fraud Investigation Office (SFIO) to launch a probe into the transactions of the company which is currently ongoing. 

In October last year, a special audit by auditing firm KPMG found that DHFL was involved in dubious transactions benefitting its promoters to the tune of about Rs 24,000 crore. 

R Subramaniakumar, the RBI appointed administrator of DHFL, in January this year, has ordered three transaction audit reports by Grant Thornton to examine the allegations of related-party and fraudulent transactions.

The CBI in April arrested Kapil Wadhawan and Dheeraj Wadhawan, promoters of DHFL in a case related to financial irregularities between the company and the Yes Bank. The investigative agency is probing the role of Wadhawan brothers regarding allegations that DHFL received Rs 3,700 crore of loan from Yes Bank fraudulently through dubious transactions involving Rana Kapoor, the erstwhile promotor of the private bank.