Punjab National Bank posted its highest-ever quarterly net loss of Rs 134 billion in the last quarter of 2017-18, owing to the fraudulent loans worth Rs 143 billion issued to group of companies belonging to Nirav Modi and Mehul Choksi.
PNB had posted a net profit of Rs 2.6 billion in the January-March period in 2016-17. PNB's net loss in 2017-18 stood at Rs 121.3 billion compared to Rs 11.9 billion profit in the previous financial year.
PNB's losses could have been much higher, had the Reserve Bank of India (RBI) not given some relaxations to the Delhi-based public sector bank for spreading its liabilities related to the fraud and wage bills.
In January-March, the bank's gross non-performing assets (NPA) rose sharply to 18.4 per cent, from 12.11 per cent in the previous quarter. Net bad debt assets also went up to 11.2 per cent from 7.5 per cent.
The bank's losses on account of the fraud related to letters of undertaking issued to group of companies belonging to Nirav Modi and Mehul Choksi was revised upwards to Rs 143.5 billion. The bank has made a 50 per cent provisioning against the fraud.
"RBI has permitted the bank to make provisions against this fraud at 25 per cent, without debiting 'other reserves' and provide remaining amount during first three quarters of the ensuing financial year. However, bank has made higher than required provisions at 50 per cent, amounting to Rs 71.8 billion,” PNB said. The remaining provisioning of Rs 71.8 billion will be made during the first three quarters of the present financial year, it added.
PNB had reported a Rs 143.5 billion fraud in January, wherein a few of its employees had issued letters of undertaking, in collaboration of Nirav and Mehul firms, in an unauthorised manner. Since the bank's SWIFT, an international messaging system, was not integrated with its core banking system, the fraud went undetected for seven years.
PNB has cleared dues of Rs 65.9 billion to foreign branches of Indian banks to which it had issued these LoUs. An LoU was a guarantee given by a bank to a foreign branch of an Indian bank to grant short-term credit to firms. The RBI has stopped the practice of issuing LoUs after the PNB scam came to light.
PNB has also created liability in its books for dues amount to Rs 69.6 billion, in respect of the liabilities related to the other LoUs.
The RBI also allowed PNB to spread its additional liability on account of increase in gratuity limits for employees from Rs 1 million to Rs 2 billion, over four quarters. As a result, PNB has deferred gratuity payment to its employees worth Rs 1.9 billion over the first three quarters of 2018-19.
PNB had to make provisioning of Rs 31.2 billion, after the Reserve Bank of India (RBI) scrapped all the restructuring tools lenders relied on in February this year. The February 12 circular from the RBI scrapped six stressed non-performing asset (NPA) restructuring mechanisms such as Corporate Debt Restructuring, Strategic Debt Restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A) and Framework for Revitalizing Distressed Assets, Joint Lenders Forum and the 5/25 loan scheme, among others.
Instead, the RBI has asked the banks to classify stressed accounts as 'special mention accounts', at three different levels depending on the extent to which payment of principal or interest on a loan has been delayed.
"As on 31 March 2018, 28 accounts were falling under the purview of this framework for which bank has made provision of Rs 31.2 billion," PNB said.
PNB had posted a net profit of Rs 2.6 billion in the January-March period in 2016-17. PNB's net loss in 2017-18 stood at Rs 121.3 billion compared to Rs 11.9 billion profit in the previous financial year.
PNB's losses could have been much higher, had the Reserve Bank of India (RBI) not given some relaxations to the Delhi-based public sector bank for spreading its liabilities related to the fraud and wage bills.
In January-March, the bank's gross non-performing assets (NPA) rose sharply to 18.4 per cent, from 12.11 per cent in the previous quarter. Net bad debt assets also went up to 11.2 per cent from 7.5 per cent.
The bank's losses on account of the fraud related to letters of undertaking issued to group of companies belonging to Nirav Modi and Mehul Choksi was revised upwards to Rs 143.5 billion. The bank has made a 50 per cent provisioning against the fraud.
"RBI has permitted the bank to make provisions against this fraud at 25 per cent, without debiting 'other reserves' and provide remaining amount during first three quarters of the ensuing financial year. However, bank has made higher than required provisions at 50 per cent, amounting to Rs 71.8 billion,” PNB said. The remaining provisioning of Rs 71.8 billion will be made during the first three quarters of the present financial year, it added.
PNB had reported a Rs 143.5 billion fraud in January, wherein a few of its employees had issued letters of undertaking, in collaboration of Nirav and Mehul firms, in an unauthorised manner. Since the bank's SWIFT, an international messaging system, was not integrated with its core banking system, the fraud went undetected for seven years.
PNB has cleared dues of Rs 65.9 billion to foreign branches of Indian banks to which it had issued these LoUs. An LoU was a guarantee given by a bank to a foreign branch of an Indian bank to grant short-term credit to firms. The RBI has stopped the practice of issuing LoUs after the PNB scam came to light.
PNB has also created liability in its books for dues amount to Rs 69.6 billion, in respect of the liabilities related to the other LoUs.
The RBI also allowed PNB to spread its additional liability on account of increase in gratuity limits for employees from Rs 1 million to Rs 2 billion, over four quarters. As a result, PNB has deferred gratuity payment to its employees worth Rs 1.9 billion over the first three quarters of 2018-19.
PNB had to make provisioning of Rs 31.2 billion, after the Reserve Bank of India (RBI) scrapped all the restructuring tools lenders relied on in February this year. The February 12 circular from the RBI scrapped six stressed non-performing asset (NPA) restructuring mechanisms such as Corporate Debt Restructuring, Strategic Debt Restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A) and Framework for Revitalizing Distressed Assets, Joint Lenders Forum and the 5/25 loan scheme, among others.
Instead, the RBI has asked the banks to classify stressed accounts as 'special mention accounts', at three different levels depending on the extent to which payment of principal or interest on a loan has been delayed.
"As on 31 March 2018, 28 accounts were falling under the purview of this framework for which bank has made provision of Rs 31.2 billion," PNB said.
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