A pedestrian walks past a Punjab National Bank (PNB) branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

What Foreign Brokerages Made Of PNB Fraud Case

The over Rs 11,000-crore fraud at Punjab National Bank has reaffirmed that public sector lenders are becoming victims of fraud at an alarming rate due to poor risk management practices.

That’s the word coming in from two leading global brokerage houses.

Macquarie reiterated its negative stance on state-owned lenders in the light of recent incidents. In resonance, JPMorgan said that if the fraud liability falls on PNB in entirety, it would lead to slower revenue growth and might increase the cost of funding for the lender as well.

Here are the key takeaways from the brokerages’ notes:


  • The brokerage maintained an ‘Underperform’ rating with target price of Rs 128 on the stock.
  • The fraud case is another example of poor risk management practices at public sector banks, leading to Macquarie reiterating its negative stance on state-owned lenders.
  • If the bank is held liable for the entire amount including its funded exposure of Rs 1,700 crore, and non-funded exposure of Rs 11,000 crore, it would be equivalent to PNB's 27 percent of net worth and 43 percent of market cap.
  • It would also wipe out equivalent of all profits made from financial year 2011-12 to financial year 2016-17.
  • Frauds have become a periodic occurrence in PSU banks due to poor systems, checks and balances.
  • It seems difficult for the lender to recover the amount in the light of recent instances, even as Nirav Modi has fled.


  • The brokerage maintained a ‘Neutral’ stance on the stock with price target of Rs 195.
  • The fraud is likely to remain an overhang on the stock price in the near-term, JPMorgan noted.
  • While it may be too late to sell the stock but the bank recommended investors to avoid entering the stock.
  • The liability of the fraud amounting to Rs 11,300 crore, according to JPMorgan, if booked in full, would result in a near-15 percent hit on PNB’s FY19 estimated book value per share.
  • It might lead to slower revenue growth along with higher funding costs for the lender too.
  • Total liability is almost equal to the entire deposit accretion of the third quarter for the PSU Bank. Going ahead, PNB could divest its 33 percent stake in PNB Housing Finance.