PNB share price: PSU bank still below 2018 level when Mehul Choksi-led ₹14,000 crore fraud came to light

The arrest of absconding jeweller Mehul Choksi in Belgium over the weekend has brought the spotlight back on the ₹14,000-crore scam that hit Punjab National Bank (PNB) back in 2018. Choksi, along with his nephew Nirav Modi, is a key accused in one of the largest financial frauds in Indian banking history, which they pulled off with the help of a few corrupt PNB employees.

The scam, which came to light in early 2018, not only shocked the country but also spelt trouble for PNB shareholders, who lost almost 50% of their share price value in a matter of five months. And the impact still lingers, with the stock unable to recover to the pre-fraud levels.

What was the PNB scam?

The scam was carried out between 2014 and 2017, came to light in 2018 when the bank reported that fake Letters of Undertaking (LoUs) worth over ₹13,000 crore had been issued from its Brady House branch in Mumbai. These LoUs were used to get loans from overseas banks for companies owned by Nirav Modi and Mehul Choksi—such as Gitanjali Gems, Diamond R US, Solar Exports, and Stellar Diamonds. Later, these companies were found to be fake or shell firms.

However, Nirav Modi and Mehul Choksey had fled the country before the fraud came to light. In March 2018, a special court under the Prevention of Money Laundering Act (PMLA) issued non-bailable arrest warrants against Mehul Choksi and others involved. Since then, Mehul Choksi has evaded arrest, only to be nabbed by the Belgian authorities on Saturday, April 12.

How did PNB shares react to the scam?

The PNB scam was first officially reported by the lender in mid-February 2018, after which the stock was caught in a downward spiral. From trading at around ₹160 on February 14, PNB stock price hit the sub- ₹100 level by the end of the month, its lowest level since June 2016. Within a month of the scam coming to light, the stock had erased 40% of its value, and within six months, nearly 55%. Almost two years later, in February 2020, the stock was trading sub- ₹50.

Even today, the stock is still unable to recover to the same levels. As of the last trading price close, PNB shares were at ₹96.02 apiece.

How did PNB scam hit the PSU bank’s financials?

The ripple effect of the scam was also felt on the bank’s books, as the lender reported a net loss of ₹13,417 crore, the biggest ever by an Indian lender, according to a Reuters report, for the March 2018 quarter. This was also a significant decline from the ₹261.90 crore profit in the same quarter the previous year. The lender set aside a higher-than-required ₹7178 crore in the three months to March 31, 2018, or half of the total ₹14,357 crore it owes other banks for the illegal guarantees. That led to a more than tripling of its total provisions from a year earlier to ₹20353 crore, according to a Reuters report.

It was only by the December 2018 quarter that PNB reported a profit of ₹247 crore, marking its first profit since the fraud incident.

What’s the way ahead for PNB shares?

Seven years on, analysts are largely bullish on PNB shares. According to Trendlyne, out of 16 analysts covering the stock, nine have buy ratings and four have sell calls.

Recently, in a note to investors, brokerage InCred assigned an ‘ADD’ rating to PNB, citing potential upsides from the recovery of written-off accounts and optionality from tax rate reductions.

Last month brokerage Ventura Securities also initiated coverage on the stock with a ‘BUY’ rating.

“Recapitalized in FY19 and FY20, PNB strengthened its financial foundation, enabling sustained growth. Since then, it has consistently outperformed key metrics, showcasing strong business expansion, improved asset quality, and higher profitability. With a disciplined risk management approach, the bank has effectively reduced NPAs while maintaining a healthy PCR,” said Ventura in a note.

From FY24-27, PNB’s net advances are projected to grow at a CAGR of 15.5% from ₹934,413 crore to ₹1,439,205 crore, while deposits are expected to rise at a CAGR of 12.4% from ₹1,369,713 crore to ₹1,944,872 crore. Asset quality is expected to remain strong, with GNPA at 3.0% and NNPA at 0.3%, backed by disciplined underwriting and recovery efforts, according to Ventura.

“We initiate coverage with a BUY for a SOTP-based price target of ₹161 (1.0X FY27 P/Adj.BV),” it said, signaling a 68% rise over the next eighteen months. It highlighted slower-than-expected growth and potential deterioration in assets as key risks to upside.

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