Punjab National Bank (PNB) has reported a ₹2,434 crore “borrowal fraud” to the Reserve Bank of India (RBI), linking the case to the erstwhile promoters of two SREI Group entities—SREI Equipment Finance Ltd (SEFL) and SREI Infrastructure Finance Ltd (SIFL)—in a disclosure made to stock exchanges after market hours on Friday, December 26, 2025. [1]
The headline number is large, but the filing also contains a key reassurance for investors: PNB says it has already made 100% provisioning for the reported outstanding amounts, indicating no incremental hit to its financials from the disclosure itself. [2]
At the same time, the case renews attention on a long-running SREI saga that includes RBI board supersession in 2021, insolvency proceedings, and a resolution plan in which government-backed “bad bank” NARCL took over the entities. [3]
What PNB told the RBI and stock exchanges
In its regulatory communication, PNB reported two separate fraud amounts tied to the two SREI entities:
- SREI Equipment Finance Ltd (SEFL): ₹1,240.94 crore
- SREI Infrastructure Finance Ltd (SIFL): ₹1,193.06 crore
Together, they total ₹2,433.99 crore (rounded to ₹2,434 crore). [4]
PNB added two points that matter in markets:
- Full provisioning already made: PNB says it has provided 100% for the entire outstanding amount. [5]
- Resolution already achieved under insolvency: The bank said both entities have been resolved under the Corporate Insolvency Resolution Process (CIRP), with the resolution approved by the National Company Law Tribunal (NCLT). [6]
That combination—fraud reporting + full provisioning + post-insolvency resolution—is why the disclosure is significant from a governance and legal standpoint even if the immediate accounting impact appears limited.
Why the SREI connection matters: from RBI intervention to NARCL takeover
To understand why this filing is landing now, it helps to revisit the timeline.
RBI stepped in during 2021
In October 2021, RBI superseded the boards of SIFL and SEFL and indicated it would initiate bankruptcy proceedings, citing governance concerns and defaults. [7]
Insolvency resolution followed—and NARCL ultimately acquired the entities
Multiple reports note that the SREI entities had large consolidated lender exposure, with figures cited around ₹28,000 crore to ₹32,700 crore, reflecting the magnitude of the credit event that affected a consortium of lenders. [8]
A resolution plan submitted by National Asset Reconstruction Company Ltd (NARCL) was approved by the NCLT in August 2023, as documented in SREI’s own regulatory filing referencing the NCLT approval date. [9]
Subsequent reporting indicates that NARCL acquired the entities in December 2023 as part of the implementation of that resolution. [10]
So why does a bank file a fraud report after resolution? Because fraud classification and reporting are typically tied to the bank’s internal process (often informed by forensic audits and red flags), regulatory requirements, and potential follow-on actions—including law enforcement complaints—regardless of whether an insolvency process has already restructured ownership.
The KPMG forensic audit angle—and why it’s contested
One of the most consequential details to emerge in broader reporting around this disclosure is the alleged basis for fraud classification: a forensic audit by KPMG.
Reported red flags: connected-party lending and possible “evergreening”
According to reporting by The New Indian Express, the fraud classification is based on a KPMG forensic audit that flagged irregularities including loans to connected parties and potential evergreening (a practice in which fresh lending or refinancing is used to mask stress in existing loans). [11]
Earlier coverage by The Economic Times in 2022—when another lender moved first—described findings attributed to the KPMG report that included large lending to “connected parties” and “refinancing” to evergreen loans, among other concerns. [12]
Promoters’ pushback: “sub-judice” and questions about the audit
The same New Indian Express report notes that SREI founder Hemant Kanoria has challenged the forensic audit report being used as a basis for fraud classification, calling the issue sub judice. [13]
Separately, Business Standard reported in 2022 that Ratnanko Banerji, senior advocate representing Kanoria, argued before the NCLT that the final forensic audit “had gaps,” and that KPMG itself included caveats regarding limited access to data and the potential for conclusions to change with more information. [14]
A publicly available NCLT document from 2022 also references arguments raised in proceedings that the forensic audit’s purpose was to determine whether accounts should be classified as fraud and includes content indicating dispute around completeness and use of the report. [15]
Taken together, these strands are crucial for readers: PNB’s report is not a court verdict. It is a regulatory reporting step built on bank processes (often forensic audits), which can be challenged and may be tested in courts and investigations.
Not the first lender: earlier SREI fraud declarations by banks
PNB is not the first lender publicly linked to fraud classification in the SREI loan accounts.
In April 2022, The Economic Times reported that Punjab & Sind Bank declared the SREI loan accounts as fraud and reported them to RBI, while also noting that the promoters had moved court against the KPMG report. [16]
That history matters because it suggests the issue has been moving through bank consortia, legal forums, and regulatory reporting channels for years—well before the 2025 PNB disclosure.
What “borrowal fraud” reporting means under RBI rules
A “borrowal fraud” broadly refers to fraud involving borrower-side actions (as opposed to, say, employee-led operational fraud). Under RBI’s framework, fraud risk management is designed to push banks toward early detection, prompt reporting, and coordinated follow-up.
RBI’s 2024 overhaul: stronger governance, “natural justice,” and faster reporting
On July 15, 2024, RBI issued revised Master Directions on Fraud Risk Management across regulated entities. RBI’s press release says these directions are principle-based, strengthen board oversight, and explicitly require compliance with principles of natural justice before classifying persons/entities as fraud—taking into account the Supreme Court’s ruling in State Bank of India & Ors. vs Rajesh Agarwal & Ors. (March 27, 2023). [17]
RBI’s official FAQs further clarify that compliance with natural justice is applicable to all persons/entities (and their promoters/whole-time/executive directors) classified as fraud by regulated entities. [18]
A Reuters report on the 2024 RBI directive highlighted operational specifics: lenders should issue a show-cause notice with details of the alleged fraud and provide a “reasonable” response window of not less than 21 days, and banks must strengthen early warning and red-flagging frameworks. [19]
Supreme Court baseline: fraud classification has “serious civil consequences”
In the 2023 Supreme Court judgment, the court emphasized that classifying an account as fraud carries significant civil consequences, is stigmatic, and can affect access to institutional finance—therefore, audi alteram partem (the right to be heard) must be read into the framework. [20]
Leading law firm Khaitan & Co, summarizing the ruling, underscored that banks/JLFs should pass a reasoned order and provide a hearing opportunity before fraud classification because of the “grave civil ramifications” of such labeling. [21]
Why this matters in the PNB–SREI case: If the matter is challenged, questions often arise about process—what notice was given, what documents were shared, and whether the borrowers/promoters had a fair opportunity to respond—separate from the underlying allegations.
What this means for PNB’s financials and investors
While “₹2,434 crore fraud” is a startling headline, PNB’s disclosure emphasizes provisioning.
Full provisioning limits immediate accounting shock
PNB has stated it already provided 100% for the outstanding amounts, and reporting indicates the bank said there would be no additional impact on financials due to provisioning already taken. [22]
PNB’s recent profitability and asset quality context
Recent coverage also places this disclosure against PNB’s broader financial performance in FY26. For instance, PNB reported a 14% year-on-year rise in standalone net profit to ₹4,904 crore for the July–September quarter (Q2 FY26), according to reports citing filings. [23]
Business Standard also reported that PNB’s gross NPA ratio improved to 3.45% as of September 2025 (from 4.48% a year ago) and net NPA ratio improved to 0.36%. [24]
This helps explain why banks sometimes disclose large legacy fraud classifications without an immediate P&L cliff: the exposures may be long provided for, even while legal and regulatory actions continue.
What to watch next: investigations, litigation, and follow-on disclosures
For readers tracking the story beyond the day’s headline, several developments will determine how the situation evolves:
- Law enforcement actions (or updates): RBI’s framework ties fraud reporting to coordination with investigative agencies. Whether and when FIRs/complaints translate into visible investigative steps often becomes the next narrative milestone. [25]
- Court outcomes on the forensic-audit dispute: Prior reporting shows the KPMG forensic audit has been contested, including arguments on completeness and use in fraud classification. Any fresh court orders could influence how banks operationalize such reports. [26]
- Other lenders’ positions: Past disclosures show at least one lender (Punjab & Sind Bank) had already classified SREI accounts as fraud years earlier, and some reports say multiple lenders have taken similar steps. The sequence and timing of disclosures may continue. [27]
- Regulatory process scrutiny: Given Supreme Court-backed “natural justice” requirements, fraud classification increasingly gets examined through the lens of procedural fairness—notice, access to findings, opportunity to reply, and reasoned orders. [28]
Bottom line
PNB’s ₹2,434 crore SREI-linked fraud report is best read as a major regulatory and legal signal rather than an immediate financial surprise. The bank says the exposure is already fully provided for, but the disclosure revives attention on an ecosystem of issues: forensic audit findings, contested narratives in tribunals, the long arc from RBI intervention to NARCL-backed resolution, and a tightened RBI–Supreme Court standard that requires due process before fraud classification.
As the story moves forward, the most meaningful updates are likely to come from legal proceedings, investigative actions, and any additional disclosures by lenders or regulators—not from the original provisioning impact already absorbed on PNB’s books. [29]
References
1. m.economictimes.com, 2. www.financialexpress.com, 3. www.reuters.com, 4. www.financialexpress.com, 5. www.financialexpress.com, 6. www.financialexpress.com, 7. www.reuters.com, 8. m.economictimes.com, 9. www.srei.com, 10. m.economictimes.com, 11. www.newindianexpress.com, 12. m.economictimes.com, 13. www.newindianexpress.com, 14. www.business-standard.com, 15. nclt.gov.in, 16. m.economictimes.com, 17. www.fidcindia.org.in, 18. www.rbi.org.in, 19. www.reuters.com, 20. indiankanoon.org, 21. www.khaitanco.com, 22. www.financialexpress.com, 23. www.business-standard.com, 24. www.business-standard.com, 25. www.reuters.com, 26. www.business-standard.com, 27. m.economictimes.com, 28. indiankanoon.org, 29. www.financialexpress.com
