India's public banks hammered by massive $3.81b fraud loss in 2017-18

The staggering loss impacts the future lending ability of banks.

A total of 21 public sector banks in India have incurred $3.81b (Rs25,775 crore) loss in the financial year 2017-18 due to a slew of banking frauds crippling the financial sector, according to a Right to Information reply. 

Punjab National Bank was hammered by the highest loss of $953.64m (Rs 6461 crore) due to various cases of fraud taking place at the state lender. Although the reply did not identify a particular case of fraud, PNB was left in shambles after diamond merchants took off with $2b financed by fraudulent loans from rogue staff in what has become the country’s largest banking fraud to date.

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In the given period, Bank of India was pulled under by a loss of $337.12m (Rs 2,224 crore), Bank of Baroda's losses stood at $284.57m (Rs 1,928 crore), Allahabad Bank at $224.35m (Rs 1,520.37 crore), Andhra Bank at $192.32m (Rs 1,303.30 crore) and Uco Bank at $180.66m (Rs 1,224.64 crore).

The government’s efforts to inject a total of $32b to recapitalise embattled state banks may also buoy lenders just enough to survive but may not stimulate further growth as lenders have to contend with tighter capital ratios right away brought about by new financial reporting standards.

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“The government capital is only going to just plug the hole, there is definitely no growth capital,” Udit Kariwala, an analyst at Fitch Ratings’ India Ratings & Research told Reuters.

Banks need $11.87b to $14.84b (800bto 1t rupees) just to fund soured-asset provisions and maintain minimum capital ratios, meaning capital may run out soon before it can be directed for lending growth, according to Kariwala.