MUMBAI: Shares in fraud-hit Punjab National Bank plunged more than 12 per cent on Wednesday after it posted the largest ever quarterly loss for an Indian lender.

PNB, the country’s second-biggest state-run bank, has been reeling since announcing in February that it had been the victim of a 135 billion rupee ($2bn) scam involving celebrity jeweller Nirav Modi.

Investigators charged Modi in absence, as well as several senior PNB officials, on Monday over the huge fraud case, which comes as the government bids to clean up debt-laden lenders.

PNB said on Tuesday it had incurred a record 134.17bn rupee net loss for the January-March quarter, having posted a 2.62bn rupee profit in the same period last year.

Shares in the firm plummeted 12.21pc to 75.50 rupees on the Bombay Stock Exchange’s Sensex index shortly after opening Wednesday.

The bank has accused Modi and his uncle and business partner Mehul Choksi of defrauding it of 2.8bn rupees, which was just part of its total losses.

PNB said Modi and Choksi had scammed it by raising credit with international branches of other Indian banks, using illegal guarantees provided by rogue PNB employees.

The bank’s fourth-quarter losses were largely incurred by having to set aside funds to pay the other banks for the illegal guarantees.

PNB said it had allocated 71.78bn rupees to pay around half the amount it owes in the three months to March 31, while setting aside the other 50pc over the next three quarters.

Modi, the third generation of his family to go into the diamond trade, is worth $1.73bn according to Forbes, placing him 85th on India’s rich list.

The 47-year-old’s high-end Nirav Modi brand has stores in several of the world’s major cities.

Indian authorities last month asked Hong Kong for help in arresting the wanted jeweller, but no developments have been made public.

India’s Central Bureau of Investigation (CBI) has arrested 19 people for enabling the defrauding of the bank with forged documents but Modi and Choksi remain untraceable.

India’s government is trying to reduce the crippling debts of the country’s embattled state banks, including the PNB.

It has announced a $32bn recapitalisation plan to help banks clean up their books ahead of a general election next year.

Published in Dawn, May 17th, 2018