$1.8 Billion in India Bank Fraud Raises Fears of Ripple Effects
NEW DELHI — One of India’s largest commercial lenders said on Wednesday
that it had detected fraudulent transactions worth $1.77 billion at just one of its branches, raising concerns about the possible impact across the banking sector at a time when the country is struggling to meet its economic growth targets.
Fears that India’s wider banking sector may be exposed to Punjab National Bank’s troubles left
investors panicked, driving shares in several other lenders to close lower on Wednesday, too.
“They have to bite the bullet and take on bureaucrats
and the bank employee unions and actually fix banks’ governance or India will struggle to maintain its growth projections.”
Mr. Sharma, like other analysts, says the government in New Delhi will need to privatize a number of lenders or shut them down.
“This is a reminder that the bank recapitalization scheme
that the government outlined months ago doesn’t solve the problems in Indian banking,” said Mihir Sharma, a prominent Indian economist and columnist.
The disclosure comes months after India’s government injected $32 billion into the sector
to deal with bad loans, which by some estimates could be as high as $150 billion.
The scandal at Punjab National Bank, a state-controlled lender, risks drying up the very loans
that are needed for the country’s small and medium-size businesses to help steer the government’s ambitious growth programs.