NEW DELHI: The gems and jewellery portfolio is fast becoming a hot potato for banks that have been caught off-guard by the alleged financial irregularities in state-owned Punjab National Bank.A fraud of this magnitude allegedly by Nirav Modi, the man at the centre of the storm, who hails from a family of diamond merchants with an empire spread across continents, has raised eyebrows and questions alike. The alleged involvement of Modi’s uncle Mehul Choksi of Geetanjali Gems has cast its shadow on the gems and jewellery portfolio of the banking sector, given the big names that have cropped up.These raise concerns particularly with respect to exposure in gems & jewellery segment, said Edelweiss Securities. The brokerage though noted that high exposure to the segment does not necessarily suggest stress as the transaction being discussed is one-off, intentional and unauthorised incident. Here is a table that throws light on the exposure each bank — private or state-owned — has in the gems and jewellery sector, according to their latest quarterly filings.

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At the time of filing this report, the PNB stock has already fallen by one-fourth since the Rs 11,400-crore alleged fraud at one of its Mumbai branches came to light. Big lenders SBI and Union Bank are believed to have an exposure of $1.8 billion in the PNB fraud case. Allahabad Bank’s is seen at about Rs 4,000 crore while that of Union Bank is projected at around Rs 1,000-2,000 crore. The corresponding figure for Axis Bank reads about Rs 2,000-3,000 crore.According to news reports, the RBI has asked PNB to pay the entire Rs 11,300 crore owed to counterparty banks. Market watchers said the issue has surely dented the image of banks, especially the PSU lenders, as it reminds them of a similar fraud by Winsome Diamond a few years ago. Such instances of financial oversight and the resultant pressure on asset quality will be an overhang on valuations for PSU banks, said Edelweiss Securities.Industry leaders, meanwhile, hope this should be a one-off issue. “Unfortunately, these things unnecessarily add a bad name to the banking sector. I am sure that this is not a systemic issue in the banking system and is one-off incident,” Keki Mistry of HDFC told ET Now.