PNB chief expects a comeback in FY21 with 8-10% credit growth post merger

Punjab National Bank (PNB), which has lost investor support in the last two years after the Nirav Modi fraud, hopes to see a comeback in FY21 with 8-10 per cent credit growth for the merged entity. It will rationalise branches at 500 locations where PNB and merging banks (Oriental Bank of Commerce and United Bank of India) have overlapping presence.
“We agree that there has been a hit on the reputation. But it is past; after that the bank has done well,” Ch S S Mallikarjuna Rao (pictured), newly appointed managing director and chief executive officer at PNB, said during the December 2019 quarter (Q3) analyst meeting on Friday. “I would like to assure you that the trend will change by June 2020. The reason is we would like to completely leave aside the legacy by March 2020.”

After recovering over Rs 2,000 crore from Essar Steel resolution, the bank is likely to see 17 National Company Law Tribunal (NCLT) cases worth over Rs 8,700 crore getting resolved in March 2019 quarter. This would lead to around Rs 2,450 crore of recovery and Rs 1,300-1,400 crore provision write back for PNB, according to the management. Among others, two large non-performing asset (NPA) accounts, Bhushan Power and Steel (Rs 3,781 crore outstanding) and Aircel-Dishnet Wireless (Rs 2,863 crore outstanding) likely to get resolved by March.
However, agriculture and MSME (micro, small and medium enterprises) portfolio would continue to see pressure for the next couple of quarters, with expected slippages of Rs 2,000-2,500 crore each in the next two quarters.
Even in Q3, PNB saw around 50 per cent of its total slippages coming from these two pockets. Its watch-list, or loans with potential to turn bad, stands at Rs 4,900 crore out of which Rs 2,900 crore is corporate exposure (funded and non-funded) and Rs 2,000 crore from retail, agriculture and MSMEs.
Rao also expects PNB's credit growth to remain moderate in March 2019 quarter at around 4 per cent levels, but sees it improving to 8-10 per cent in FY21.
This is for the merged entity.
Retail growth is pegged at around 20 per cent. In fact, the bank would utilise the benefits of cash reserve ratio exemption, as announced by the Reserve Bank of India, to scale up its retail portfolio during the next six months.
PNB’s board is meeting on February 14, to review work on integration and fine tune plans, with respect to the merger. The bank will finalise plans in April for monetising surplus real estate — building and plots — of merged entity. The entire merger process, including human resource and core banking system integration, would be completed by March 2021.
For the proposed merged entity, 500 branches have been identified as having overlap. These branches will not be closed down but will be relocated and the merged entity will have 11,500 branches. Rao also said, the merged entity will look at raising equity capital from market in third quarter of next financial year. It could be a qualified institutional placement (QIP) or follow-on public offer (FPO), though the exact timing would be decided later.
• Expects Rs 2,450 crore loan recovery in March quarter
• Agri and MSMEs slippages of up to Rs 5K crore in six months
• Merger process to be completed by March 2021
• Retail credit to grow by 20% in FY21
• Merged entity will have 11,500 branches

PNB to hold board meeting soon to consider merger with OBC, United Bank

Punjab National Bank (PNB) on Saturday said a board meeting will be held soon to consider amalgamation of Oriental Bank of Commerce and United Bank of India with itself.
The bank has received a communication from the Ministry of Finance that the Alternative Mechanism (AM), after consultation with Reserve Bank of India (RBI), has decided that Punjab National Bank, Oriental Bank of Commerce (OBC) and United Bank of India may consider amalgamation, it said in a regulatory filing.

"Accordingly, a meeting of board of directors to consider the amalgamation will be convened by the bank shortly," PNB said.
Meanwhile, Corporation Bank, which is going to be merged with Union Bank of India along with Andhra Bank, too said a board meeting will be held to consider the merger.
In a stock exchange filing, it said "a meeting of the Board of Directors of the Bank to consider the amalgamation will be convened by the Bank in due course".
The government on Friday unveiled a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as it looks to boost economic growth from an over six-year low.
Finance Minister Nirmala Sitharaman, who had last week announced tax sops and measures for sectors such as auto, announced four new sets of mergers -- Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation's second-largest lender; Canara Bank and Syndicate Bank will merge; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will merge with Allahabad Bank.
The exercise, seen together with the previous two rounds of bank consolidation, will bring down the number of nationalised public sector banks to 12 from 27 in 2017. This, the government feels, will make bank balance sheet stronger with greater capacity to lend.

PNB reports profit of Rs 1,019 crore for June quarter, net NPAs rise QoQ

Punjab National bank (PNB) on Friday reported a profit of Rs 1,018.63 crore for the quarter ended June 30, 2019 (Q1FY20) against loss of Rs 940 crore registered in the corresponding quarter of the previous fiscal.
Provisions and contingencies stood at Rs 2,023.31 crore, down 64.8 per cent against 5,758.16 crore logged in the year-ago period. Sequentially, the numbers droped 79.9 per cent. In the March quarter, figures stood at Rs 10,071.11 crore.
It was a positive surprise from the bank as most analysts had projected loss for the period.
For instance, analysts at Edelweiss Securities had forecast the public sector lender to report a loss of Rs 905.8 crore while those at Phillip Capital had estimated NII at Rs 4,316.5 crore, down 8 per cent YoY and a loss of Rs 1,006.9 crore.

“Business momentum is expected to be softer (albeit improving). The asset quality performance is likely to show some improvement… That said credit cost will be higher,” Edelweiss Securities had written in a results preview note.
Click to read analysts' view
Gross NPAs increased to 16.49 per cent against 15.50 per cent in the previous quarter. In the year-ago period, the figures stood at 18.26 per cent.
Net NPA (non-performing assets) declined year-on-year (YoY) to 7.17 per cent against 10.58 per cent in the year-ago period. Sequentially it rose as in the March quarter, the figures stood at 6.56 per cent.
Basic diluted EPS (earnings per shares) came in at Rs 2.21 against Rs (-) 3.41 in the year-ago period.
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"Bank has reported one loan account in the Power and Steel sector under Borrowal Fraud category to RBI during Quarter II of current FY involving an amount of Rs 3760.62 crore outstanding as on 30.06.2019. The account was already under NPA category since FY2016 and provision amounting to Rs 1,880.44 crore was held in the account as at June 30, 2016. This is a consortium advance of 33 lenders which is near resolution stage under NCLT. The remaining provision in the fraud account will be done by the Bank in terms of extant RBI guidelines," PNB said in its press release.

Allahabad Bank reports Rs 1,744-cr fraud by Bhushan Power & Steel to RBI

After Punjab National Bank (PNB), another state-owned lender Allahabad Bank Saturday reported fraud of over Rs 1,774 crore by Bhushan Power and Steel to the Reserve Bank of India.
Allahabad Bank in a regulatory filing said on the basis of forensic audit investigation findings and CBI filing FIR against the company and its directors, alleging diversion of funds from banking system by Bhushan Power and Steel Ltd (BPSL), a fraud of Rs 1,774.82 core has been reported by the bank to the Reserve Bank.

Last week, PNB reported a fraud worth Rs 3,805.15 crore by the bankrupt steel company BPSL by misappropriating bank funds and manipulating its books of accounts.
Around 85 per cent of PNB's Rs 4,399 crore exposure to the company had been siphoned off.
Allahabad Bank further said it has been observed that the company has misappropriated bank funds, and manipulated books of accounts to raise funds from consortium lender banks.
The bank has already made provisions amounting to Rs 900.20 crore against exposure of the bank in BPSL, it said.
At present, the case is in the National Company Law Tribunal (NCLT), which is in advance stage and the bank expects good recovery in the account.
It is expected that more banks may report fraud committed by BPSL as the CBI complaint registered in April names several other lenders.
According to the CBI, BPSL diverted around Rs 2,348 crore through its directors and staff from the loan accounts of PNB (IFB New Delhi & IFB Chandigarh), Oriental Bank of Commerce (Kolkata), IDBI Bank (Kolkata) and UCO Bank (IFB Kolkata) into the accounts of more than 200 shell companies without any obvious purpose.
The agency said that the company in doing so had misused the funds and the FIR named chairman Sanjay Singhal, vice-chairman Aarti Singhal, along with other directors as suspects.
"It was further alleged that the said Company availed various Loan facilities from 33 banks/financial institutions during the year 2007 to 2014 to the tune of Rs 47,204 crore (approx) and defaulted on repayments. Subsequently, lead bank PNB declared the account as NPA followed by other banks and financial institutions," the CBI had stated.

PNB to sell part stake in housing finance arm for Rs 1,852 crore

State-run Punjab National Bank (PNB) is selling part of its stake in PNB Housing Finance to global private equity firm General Atlantic Group and alternative investment firm Varde Partners for Rs 1,851.60 crore.
After the transaction, PNB will continue to hold a 19.78 per cent stake in the housing finance arm, and will remain the promoter and strategic shareholder of the company, the lender informed the stock exchanges on Friday. As of December 31, 2018, PNB held 32.79 per cent in PNB Housing Finance.

PNB will sell 10.89 million equity shares each to General Atlantic and Varde Partners at Rs 850 per share, aggregating to Rs 1851.60 crore.

The stake sale is part of PNB’s strategy to raise money via divestment of stake in strategic investments and sale of non-core assets.
PNB offloads stake in PNB Housing Finance for Rs 1,851 crore
In July 2018, PNB Housing Finance had informed the exchanges that PNB and Quality Investment Holdings (QIH) of the Carlyle Group were considering a joint stake of a minimum 51 per cent in the company. However, in November, the housing finance firm said PNB would independently pursue and proceed with the sale of its shareholding to financial investors via a competitive bidding process.
QIH, on the other hand, had decided to withdraw from the joint sale process.
QIH had stated it was considering all options, including restarting the sale process jointly or independently, depending upon market conditions, among other factors.
It had also mentioned that it might consider buying an additional stake in PNB Housing Finance or participate in a potential sale process as a buyer.
As of December 31, 2018, QIH held 32.4 per cent in the company.
PNB was one of the five state-owned lenders who got shareholders’ approval on Thursday to issue and allot equity shares to the government for capital infusion, to the tune of Rs 5,908 crore.
PNB Housing Finance closed 4.36 per cent higher at Rs 865.70 on the BSE, compared to its previous close, while PNB closed 0.05 per cent higher at Rs 95.40.

Rs 14,300-cr fraud: Centre issues order to sack two PNB executive directors

The central government has sacked two Punjab National Bank (PNB) executive directors (EDs) for their alleged involvement in the Rs 14,300-crore fraud by a group of companies belonging to Nirav Modi and Mehul Choksi. The incident came to light a year back.
In an order issued on Friday, the finance ministry said the two EDs — K V Brahmaji Rao and Sanjiv Sharan — “failed in exercising proper control over the functioning of PNB which enabled the fraud” that went undetected for several years “snowballing into a large amount”.
The Centre said the two executives failed in their capacity in the top management to justify their dismissal. Terminating service is the highest form of action against a public servant.
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The ministry said SWIFT, an international messaging system used by banks to sanction loans, was also misused.
Rao, who was set to superannuate on Monday, has put a petition in the Delhi High Court challenging the Central Bureau of Investigation’s (CBI’s) case against him. The finance ministry said his termination will be subject to the court order. Sharan was due to retire in May.
The action against Sharan and Rao comes six months after the government had issued a show-cause notice to both of them, asking why action should not be taken against them. The board of PNB was also consulted in the matter.

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While PNB’s former managing director and chief executive officer Usha Ananthasubramanian was sacked on the last day of her work as the chief executive of Allahabad Bank in August, Rao’s and Sharan’s powers were divested by the Centre in May last year.
According to the CBI’s charge sheet, submitted in the Mumbai special court of the CBI in May this year, PNB’s top officials, including Ananthasubramanian, Rao, and Sharan, did not implement the circular and action notices issued by the Reserve Bank of India in 2016 on safeguarding SWIFT operations.
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The group of companies belonging to Modi and Choksi had managed to secure loans illegally since 2011, bypassing the due procedures with the help of bank executives. The fraud came to light in January last year when the bank detected the fraud and reported it to the CBI.

PNB scam a civil transaction, being blown out of proportion: Nirav Modi

Nirav Modi, a prime accused in the multi-crore PNB fraud case on Saturday said that he has done nothing wrong and that the scam was a "civil transaction" which is now being blown out of proportion.
Modi, on Saturday, filed a response before the PMLA court opposing the Enforcement Directorate's complaint to have him declared a "fugitive economic offender" under the Fugitive Economic Offenders Act.

In the response, the absconding diamantaire also stated that he is unable to fly back to India citing security reasons.
Modi and his uncle Mehul Choksi, who are wanted in India for loan default, fled the country in the first week of January last year after their companies were found cheating the state-run PNB of Rs 13,000 crore.
The duo has not returned to India since then despite repeated summons from probe agencies and courts.
Modi is said to be in London while Choksi is residing in the Caribbean country of Antigua and Barbuda. The government has also sent formal requests to both seeking their extradition.

PNB scam: Nirav Modi, Mehul Choksi's illegal Alibaug bungalows to be razed

Authorities have been directed to demolish "illegal" bungalows of fugitive diamond traders and PNB scam accused Nirav Modi and Mehul Choksi situated in Raigad district, a Maharashtra minister said on Tuesday, days after the Mumbai High Court pulled up the state government for not taking action against the buildings.
Environment Minister Ramdas Kadam gave the demolition orders after presiding over a review meeting on illegal bungalows built in the adjoining coastal district with Raigad collector Vijay Suryawanshi at the state secretariat.

After the meeting, Kadam told reporters that 121 "illegal" bungalows, including those built by Modi and Choksi, were identified in Alibaug, a coastal town popular as a weekend getaway for Mumbai residents.
Similarly, 151 unauthorised bungalows have been built in Murud area of the district, he said.
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All these bungalows have come up allegedly in violation of Coastal Regulation Zone (CRZ) norms and also do not conform to their sanctioned plans, Kadam said.
"Some of these illegal bungalows belong to Nirav Modi, Mehul Choksi and others. Today, I have asked the Raigad Collector to demolish the illegal bungalows of Nirav Modi and Mehul Choksi," said Kadam.
An official from the district collector's office said Modi's bungalow is located in Kihim village, while that of Choksi is in Awas village.
In case of other illegal bungalows, there are stays granted either by district courts or the Bombay High Court, Kadam said.
"So, we have now transferred the cases to the National Green Tribunal. The Raigad police will conduct verification of documents in a month. All the cases in the NGT are likely to be cleared in the next 2-3 months," he said.
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As of now, action would not be taken against illegal bungalows built by local residents, the minister said.
The number of unauthorised bungalows built by local residents in Alibaug and Murud stood at 61 and 50, respectively, Kadam said.
Suryawanshi said the government will go ahead with the demolition process after taking permission from the Enforcement Directorate (ED), which has attached the bungalows of Modi and Choksi as part of its probe into the multi-billion PNB scam which came to light in February this year.
Both the diamond traders, key accused in the mega banking scam, have fled India.
"The demolition action will happen after we get a go-ahead from the ED," said Suryawanshi.
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On August 14, the High Court, while hearing a petition, had pulled up Maharashtra government officials for not taking action against the illegal bungalow of Nirav Modi.
The HC had said it will direct the state government to initiate an inquiry into the issue.

PNB's big wilful defaults fall to Rs 153 bn in June; improve 0.87% over May

Dues from big wilful defaulters of Punjab National Bank (PNB) fell by 0.87 per cent to Rs 153.54 billion on June 30 compared to previous month, the bank data has shown.
The data on big wilful defaulters is pertaining to those borrowers who took a loan of Rs 2.5 million and above from the public sector lender.
Such borrowers had an outstanding of Rs 154.9 billion at the end of May 2018.
For the financial year ended March 2018, the bank's balance sheet had closed with big wilful defaults owing Rs 151.71 billion.
PNB suffered a standalone net loss of Rs 122.82 billion in 2017-18, as against a profit of Rs 13.24 billion in 2016-17.
The major defaulters included Kudos Chemie Ltd - Rs 13.01 billion; Kingfisher Airlines Rs 5.97 billion; Jas Infrastructure Rs 4.1 billion; VMC Systems Rs 2.96 billion; MBS Jewellers Rs 2.66 billion; Tulsi Extrusion Rs 1.75 billion and Arvind Remedies Rs 1.58 billion.
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Among others included ICSA (India) Ltd Rs 1.34 billion; Bhawani Industries Rs 1.06 billion; Indu Projects Rs 1.02 billion; BBF Industries Rs 1.01 billion. These borrowers took the loan from PNB as part of a consortium lending from various banks.
The defaulters who took loan solely from PNB were: Winsome Diamonds and Jewellery - Rs 8.99 billion; Forever Precious Jewellery & Diamonds - Rs 7.47 billion; Zoom Developers - Rs 4.10 billion; Apple Industries Rs 2.48 billion; Mahua Media Pvt Ltd - Rs 1.04 billion and Shree Sidhbali Ispat Rs 1.65 billion.
Among others were: Rupana Papers Rs 1 billion; Surya Vinayak Industries Rs 1.33 billion; Vishal Exports Overseas Rs 983.9 million; Ramsarup Nirmaan Wires Rs 1.48 billion; Ramsarup Lohh Udyog Rs 1.29 billion; Rupana Papers Rs 1 billion and Rana Alloys Rs 789 billion.
The banking sector, particularly state-owned lenders, is grappling with mounting non-performing assets (NPAs) or bad loans as also a host of scams and frauds. NPAs in the banking sector stood at Rs 8.31 trillion as of December 2017.
The total bad loan write-off by the public sector banks stood at over Rs 1.2 trillion in the last fiscal, with SBI bearing the burnt at Rs 401.96 billion, nearly 25 per cent of the total write-offs during 2017-18.

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This was followed by Canara Bank (Rs 83.10 billion), Punjab National Bank (Rs 74.07 billion) and Bank of Baroda (Rs 49.48 billion).
Scam-hit PNB, which has suffered a fraud of Rs 143.57 billion allegedly carried out by celebrity jewellery designer Nirav Modi and his associates, witnessed a sharp deterioration in its asset quality with gross loans mounting to 18.38 per cent of gross advances at the end of March 2018, as against 12.53 per cent a year ago.
Net NPAs have also soared to 11.24 per cent against 7.81 per cent year ago.
In absolute terms, the gross NPAs of PNB surged to Rs 86,620 crore in the fourth quarter last fiscal as compared to Rs 553.7 billion in the same quarter previous year. Similarly, the net NPA also rose to Rs 486.84 billion from Rs 327.02 billion at the end of March 2017.

Wilful defaults by PNB's big borrowers slip further to Rs 152 bn by Apr-end

State-run Punjab National Bank (PNB) saw wilful defaults by big borrowers slipping further to Rs 152 billion in April this year over the previous month, soon after suffering a record loss of more than Rs 134 billion for January-March due to frauds and bad loans.
The bank which posted a record loss of more than Rs 134 billion for the last quarter of 2017-18 closed the fiscal with big wilful defaults of Rs 152 billion, according to the PNB data.

Big wilful defaulters are categorised by PNB as those borrowers with loan outstanding of Rs 2.5 million and over.
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The country's second largest public sector lender is already in troubled waters due to the Rs 143.57 billion fraud allegedly carried out by celebrity jewellery designer Nirav Modi and his associates.
Major defaulters in big borrowers category include Kudos Chemie Rs 130 billion; Kingfisher Airlines Rs 5.97 billion; BBF Industries Rs 1 billion; ICSA (India) Ltd Rs 1.34 billion; Arvind Remedies Rs 1.58 billion and Indu Projects Ltd Rs 1.02 billion.
Jas Infrastructure and Power Limited Rs 4.10 billion; VMC Systems Ltd Rs 2.96 billion; MBS Jewellers Pvt Ltd Rs 2.66 billion also figured in the list. These borrowers were part of the consortium lending by PNB.
Those among key borrowers who borrowed money solely from the bank included Winsome Diamonds and Jewellery Ltd Rs 8.99 billion; Zoom Developers Rs 4.10 billion; Forever Precious Jewellery & Diamonds Ltd Rs 7.47 billion.
Of the others are Surya Vinayak Industries Rs 1.33 billion; Nafed Rs 2.24 billion; and Mahuaa Media Rs 1.04 billion.
The scam-hit bank earlier last week posted a standalone net loss of Rs 134.16 billion for the January-March period of 2017-18, the biggest ever by any domestic lender, as bad loans surged.
As a result, provisions for the bad loans jumped four-fold to Rs 162 billion for the quarter under review compared to Rs 491 billion parked aside in the same period a year ago.
For the full fiscal 2017-18, bank posted standalone loss of Rs 122.82 billion against a profit of Rs 13.24 billion in 2016-17.
Bank's asset quality has witnessed sharp deterioration as gross net performing assets (NPAs) or bad loans, hit 18.38 per cent of gross advances at the end of March this year, as against 12.53 per cent a year ago.
Net NPAs were also soared to 11.24 per cent against 7.81 per cent year ago.
In absolute term, the gross NPA of the bank surged to Rs 866.20 billion in the fourth quarter as compared to Rs 553.70 billion in same quarter a year ago. Similarly, the net NPA also rose to Rs 486.84 billion from Rs 327.02 billion at the end of March 2017.

Worst is behind us, bank in recovery mode: PNB MD on Nirav Modi mess

The worst is over for PNB and it will come out of the mess created by the Nirav Modi fraud case in six months, the state-run lender's Managing Director Sunil Mehta said on Sunday.
Punjab National Bank (PNB) was hit by country's biggest ever banking fraud of more than Rs 130 billion perpetrated by billionaire diamantaire Nirav Modi and his associates in connivance with some officials of a branch of the bank in Mumbai.

The bank has received tremendous support from the government, other stakeholders and employees to come out of the situation, Mehta told PTI in an interview.
"So worst is behind us. Everything now seems to be under control as surgery is over, now we are in the recovery phase. We are anticipating that we will be able to come out of this entire problem and pain in the next six months," he said.
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Emphasising the long legacy and strength of the bank, Mehta said, "it is a 123-year old institution which was founded during Swadeshi movement by Lala Lajpat Rai. This institution has 7,000 branches spread through length and breadth of the country with business of more than Rs 10 trillion in the domestic market. So fraud of this nature could not shake confidence of our customers during this period."
Even during trying times, the bank's business has grown better than the industry, he said, adding that credit has witnessed a growth rate of about 10 per cent, in line with the guidance that was shared with investors.
With regard to deposits, the bank has recorded a growth of 6.2 per cent, he said.
"So, we have grown in line with industry and even during difficult days it was business as usual. With all this negativity which was created in the environment, the customers' confidence was not lost and the credit goes to 70,000 employees who stood with me in the difficult time.
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"They have gone the extra mile, they have done extra hard work to see that every customer is attended to properly. Now, we are in the bounce back mode," he said.
"It is now clear that it was a standalone incident in one of our 7,000 branches because of connivance with some of the staff of the branch. We have learned lessons from it. Whenever a problem comes, it gives an opportunity to strengthen our existing systems and processes. We have improved every system and process with more emphasis on offline monitoring," he said.
Citing an example, Mehta said the bank is going to reform the credit processes by dividing it into four verticals -- sourcing, processing, monitoring and recovery. All these will be a separate compartment so that the risk is mitigated.
Besides, he said, the bank has launched 'Mission Parivartan' to realign all business processes to meet present-day requirements.
"We decided to deploy the technology. We had strengthened our back office for foreign exchange dealings, now we are going to expand it to cover 100 per cent activities in forex-related areas. We started with integrating SWIFT with the core banking solution and we will be able to complete the process before April 30," he said.
On internal audit, he said besides physical audit, there will be offline monitoring too for which the bank is creating a separate cell which will do offsite monitoring of all exceptional transaction reports.

PNB scam: Bank to focus on internal audits, recovery, small depositors

Punjab National Bank (PNB) has decided to increase the number of internal audits and increase focus on recovery of bad debts in the aftermath of the Rs 129 billion scam that hit the bank earlier this year.
The decisions were taken in an extraordinary general meeting held by PNB's top management on Friday to approve giving a matching portion to the government through preferential shares as a part of government's bank recapitalisation process. Government will infuse Rs 54.7 billion in PNB in 2017-18 through recapitalisation bonds after which the government's stake in the bank will increase to 62.2 per cent from 57.1 per cent.
During the EGM, the top management reiterated to its stakeholders that the Delhi-based public sector bank will honour all the “bonafide” letters of undertaking.
The bank is in a dispute with other Indian banks over the liability arising out of the scam. While PNB has said that it will honour the commitments of LoUs worth Rs 129 billion based on an investigation by central agencies, other banks have maintained that PNB is liable for the entire amount since LoUs were issued by them.
The bank management took questions from stakeholders on the alleged scam and chalked out a multi-pronged strategy in order to “tighten checks and balances on the system.”
“Frequency of internal audits will go up and as and when required, external auditors will also be utilised,” PNB said in a statement.
The bank will focus on recovering bad loans by strengthening the war-room created for speedy recovery by deploying more people “with intensified field follow-ups and legal preparedness.“
The bank said it will start targetting small depositors and increase its focus on current and savings accounts (CASA). “The bank is already generating more than 40 per cent of its resources through CASA,” PNB said.
It will hold customer, investor and town hall meetings as a part of its extensive reach out programme following the scam.
“Clarifying on questions being raised on the ongoing bank fraud case investigation, PNB reassured its stakeholders, customers, partners and employees on the bank's capability and capacity to come out of this situation,” PNB said.
Two employees at PNB's Brady House branch in Mumbai had issued fraudulent LoUs worth around Rs 129 billion for a group of companies belonging to Nirav Modi and Mehul Choksi.

PNB fraud: Jewellery export body for uniform lending rules at all banks

The Gems and Jewellery Export Promotion Council (GJEPC) has some suggestions for avoiding a repeat of the Punjab National Bank (PNB) scam.
The body, operating under the aegis of the Union Ministry of Commerce, has recommended to the Ministry of Finance that a uniform lending standard should be adopted across banks.

In a letter addressed to Finance Minister Arun Jaitley, GJEPC suggests a meeting should be convened of all bank chiefs to address the differences in existing guidelines amongst them, and draft a new one for all banks.
GJEPC represents 95 per cent of the $43-billion diamond jewellery trade in India, with 6,500 members, across all value chains.
Banks differ in lending norms to jewellery entities; the scam involves manipulation of the rules by prominent firms in the segment. One bank might seek diamonds as collateral; another might clear a loan based on customer companies' balance sheets. Diamond jewellery companies have been alleged to inflate their balance sheets through means such as round tripping and over-invoicing of saleable ornaments.
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"All banks today practice different types of lending norms. In the process, many genuine players do not get finance for working capital. And, a few get finances unscrupulously.
Uniform lending guidelines would result in strict adherence through the banking system," said an industry veteran.
Colin Shah, vice-chairman of GJEPC, declined to share the letter's details. "The content would be made public in due course," he said in response to a query.
Since the PNB-Nirav Modi/Mehul Choksi scam erupted a fortnight before, GJEPC has been meeting banking officials in charge of lending to the entire diamond value chain, from the stage of rough diamond import to retailing of jewellery.
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"Letters of undertaking (LoUs) are not a prevalent practice to raise working capital from banks. LoUs were the invention of the people involved in the scam. The diamond trade uses Lines of Credit for execution of orders. Hence, the PNB-Nirav Modi and Gitanjali Gems scam is an aberration for the entire gems and jewellery sector. The business would normalise in a couple of months," said Shah.
Meanwhile, says GJEPC, it has initiated cancellation of membership of Firestar Diamond, owned by Nirav Modi, and Gitanjali Gems, headed by Mehul Choksi. The Council has issued a showcause notice to both, seeking a response by this Friday. Later, it will refer the case to its the disciplinary committee, to initiate cancellation of membership.
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Informed sources say Nirav Modi's clients in America have cancelled orders, withdrawn products from display in showrooms and also returned goods to his companies. All of which has forced Firestar Diamond to apply there for what is termed Chapter 11 bankruptcy, where an insolvent debtor usually proposes a plan of reorganisation to keep its business alive and pay creditors over time.

PNB is not shown as creditor in US bankruptcy filing by Nirav Modi's firms

The Punjab National Bank (PNB) is not shown as a creditor in the bankruptcy documents filed in a court in New York by three companies affiliated with Nirav Modi, who has been accused in a $2 billion-scam involving the nationalised financial institution.
But the document acknowledges that the filing of criminal complaints by PNB regarding allegations of "unauthorised loans" to Nirav Modi and affiliated foreign companies were the "events leading" to the filing of the bankruptcy petition.

The only banks mentioned as creditors are HSBC and Israel Discount Bank (IDB), which have outstanding loans totaling $20 million to two of the companies. The IDB's revolving credit facility is guaranteed by Modi personally, as well as by two other companies, the document said.
However, tying up the three companies in bankruptcy proceedings would place hurdles for PNB to go after the Nirav Modi's assets in these companies.
"In most instances, the filing of the bankruptcy case automatically stays certain collection and other actions against the debtor and the debtor's property," warns a note from the authorities that is attached to the bankruptcy documents. "If you attempt to collect a debt or take other action in violation of the Bankruptcy Code, you may be penalised."
The three companies, -- Firestar Diamond, Inc. (FDI); Fantasy, Inc. (FI), and A Jaffe Inc. (AJI) -- filed for bankruptcy protection in the United States Bankruptcy Court for Southern New York on Monday.
The bankruptcy petition documents, obtained by IANS from the court system, show a maze of inter-connected ownerships that finally lead the three companies through several subsidiaries to Nirav Modi via Hong Kong.
Mihir Bansali, who is shown as the president and sole director of the three companies seeking voluntary bankruptcy, signed the main document for the bankruptcy petition.
On Thursday, the Nirav Modi jewelry showroom on New York's Madison Avenue in the middle of high fashion outlets was closed, with the main entrance locked and shades pulled over the windows.
It was not possible to ascertain which company owned the showroom or why it was shut.
The three companies have petitioned under the Chapter 11 of the United States Bankruptcy Code, which permits them to operate while they reorganise their operations.
Their filing claimed that the reason for seeking bankruptcy protection was to "preserve the going concern value of their businesses and effectuate a sale or other transaction" for their brands to continue.
This implies that they were not under direct financial distress.
They admitted that vendors were reluctant to continue doing business with them and some customers have begun to exploring other suppliers following the "negative publicity" that has impaired their operations and "created a great deal of uncertainty and confusion in the market."
The government actions in India disrupted their supply chain, the filing added, was a reason for the bankruptcy filing.
They said they are trying to "reassure their customers and vendors that they were committed to carrying on their business and that swift action was being taken to mitigate the damage caused by the actions in India".
According to Bansali's document, FDI is owned by another US company, Firestar Group, Inc. (FGI), which is a wholly owned subsidiary of a US company, Synergies Corporation, which is a subsidiary of Honk Kong-based Firestar Holdings Limited (FHL) that is ultimately owned by Firestar International Limited (FIL), an Indian corporation whose majority shareholder is Nirav Modi.
FI is a subsidiary of FDI and 95 per cent of AJI is owned by Synergies.
Bansali is also the president and sole director of FGI and Synergies. Ajay Gandhi is shown as the secretary and chief financial officer for the three debtors, as well as FGI and Synergies.
As of Wednesday, an IANS search of court databases did not find any filings for FGI or Synergies.
The balance sheet as of last week filed in the court showed that Nirav Modi Inc owed $11.016 million to AJI and $1.767 million to FDI.
Synergies is owed $10.812 million by AJI and $7.941 million by FDI, while FHL is owed $4 million by AJI and $4.05 million by FDI, according to the balance sheet.
The filings said that FDI and FI have about $90 million of annual sales and their clients include Zales, Kay's, Jared's, COSTCO, Sam's Club, Macy's, JC Penney and US military bases.
AJI, it said, specialises in bridal jewelry and it had double digit sales growth for the last three years and were projected to reach $23 million in fiscal 2018, the document said.
Bansali asserted that they have seen "strong" early interest in purchasing some or all of their business operations.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

PNB fallout: Jaitley talks of tougher law to bring scamsters to justice

Without mentioning the Rs 11.3 billon fraud on state-run Punjab National Bank (PNB) involving diamantaire Nirav Modi, Finance Minister Arun Jaitley on Saturday said Indian law will be suitably amended to bring to bear the full weight of justice on fraudsters.
Making his first public comments on the PNB scam that has rocked the banking system, Jaitley had earlier this week said that the state is duty-bound to ensure that those cheating the system are brought to justice.

"Indian business has to learn to do ethical business.
Those who deviate from this will face the consequences not only in terms of business and civil law, but the criminal law too will be transformed to allow extreme action against such delinquents," Jaitley said at the ET Global Business Summit here on Saturday.
He also said that the Indian industry now needs to seriously introspect about its responsibility to be ethical while doing business.
"Rather than always have a close look at what governments are doing, Indian industry needs to look inwards and to a fair bit of introspecting," the Finance Minister said, adding that the industry, in collusion with chartered accountants, had for years been employing various ways like creating shell companies to "round trip" money and avoid paying taxes.
At an event here on Tuesday, he had said: "It is incumbent on us as a state, till its last legitimate capacity, to chase these people to the last possible conclusion to make sure that the country is not cheated."
In connection with the PNB case, a Central Bureau of Investigation (CBI) Special Court in Mumbai has remanded to police custody till March 3 three accused persons in the case -- PNB Deputy Manager Gokulnath Shetty, Single Window Operator Manoj Kharat and an authorised signatory of prime accused Nirav Modi's group companies.
Besides them, the CBI has also named 10 other directors and officials as accused in the scam.
The Enforcement Directorate (ED) on Saturday said it has attached diamond trader Nirav Modi's 21 immovable properties worth Rs 5.24 billion in connection with an ongoing probe into the Rs 11.3-billion Punjab National Bank (PNB) fraud case.
The assets include a farm house in Alibaug (Rs 427 million) near Mumbai seashore, a solar power plant spread over 53 acre of land in Ahmednagar in Maharashtra (Rs 700 million) and another 135 acre land in Ahmednagar (Rs 22 million), along with other residential and office properties worth Rs 4.08 billion in Mumbai and Pune.
On Friday, the ED said it has frozen Nirav Modi's bank account and shares worth Rs 430 million. It had earlier seized bank deposits, shares and luxury cars worth over Rs 1 billion belonging to the businessman and his group.
The agency has also frozen mutual funds and shares worth Rs 78 million of Nirav Modi and Rs 867.2 million belonging to his uncle Mehul Choksi of the Gitanjali Group.
Both central agencies had conducted multiple raids at the residential and office premises and showrooms of the accused traders ever since the CBI filed two FIRs on February 14-15 against Nirav Modi and the Gitanjali Group of companies.

Another PNB scam: After Nirav Modi, Rs 6.2 mn Mudra loan fraud reported

The Central Bureau of Investigation (CBI) has registered a fresh case related to fraudulent loans issued under Prime Minister Narendra Modi's flagship Micro Units Development and Refinance Agency (Mudra) scheme. The fraud was reported in Punjab National Bank, which is in the midst of another scam worth Rs 114 billion.
A senior branch manager at PNB’s Barmer branch in Rajasthan “dishonestly and fraudulently sanctioned and disbursed 26 Mudra loans” between September 2016 and March 2017, causing a loss of Rs 6.2 million to the public sector bank, the CBI has alleged in a case filed on Wednesday.
The CBI has stepped up its vigil in the banking sector after an alleged Rs 114 billion-scam hit PNB related to the letter of undertakings having been fraudulently issued to a group of companies belonging to diamantaire Nirav Modi and his uncle Mehul Choksi.
ALSO READ: PNB fraud: 'Helpless', says Mehul Choksi as 1,200 diamond workers lose jobs
In the latest case, PNB sanctioned Mudra loans “without conducting meaningful pre-inspection or physical verification of spot of business or residence and without ascertaining end use of the loan amount or creation of assets from the loan amount,” according to CBI.
The NDA government launched the Mudra scheme to give unsecured loans of up to Rs 1 million to small enterprises with the objective of boosting self-employment. Under Mudra, the rate of interest of the loans is relatively low compared to other loans and the borrower is not required to submit collateral to banks at the time of availing the loan facility.
ALSO READ: After PNB, Rs 3.9-bn Oriental Bank of Commerce scam hits banking sector
However, after sanction or disbursement of loan, the borrower is required to create an asset using the money that acts as a security to the bank against the sanctioned loan.
In this case, no assets were created out of the loans sanctioned under Mudra.
The CBI has found major lapses on the part of PNB. Inder Chand Chundawa, the then senior branch manager at PNB Barmer, did not conduct a pre-loan inspection and physical verification of the spot of business and did not verify if assets were created out of the sanctioned loan.
Field verification was done only in one of the 26 loan cases that “appears to be fake and prepared on table at office,” the CBI noted. Some borrowers were found to be residing 100 kilometres away from Barmer, whereas, the bank can only sanction loans to people residing within 25 kilometres radius of the branch.
ALSO READ: Rs 114-bn PNB scam: Sin or crime?
Five out of the 26 loan accounts have turned into non-performing assets as the loans were not utilised to create assets.
“The bank cannot recover the outstanding amount of R.6.2 million as no security is available with the bank. Thereby, the suspect public servant caused wrongful loss of Rs.6.2 million to the bank and corresponding wrongful gain to himself and other unknown persons,” the investigative agency said.
CBI further found that PNB’s deputy general manager at Jodhpur had conducted an enquiry into the matter and the section officer of the branch was also suspended “but later on he had been revoked” and presently he is posted at PNB Abu Road branch in Rajasthan.
Read our full coverage on Nirav Modi scam at PNB

PNB scam: Govt moves NCLT to freeze assets of Nirav Modi, Choksi firms

The Ministry of Corporate Affairs (MCA) on Friday filed a petition against Gitanjali Gems, a listed firm promoted by Mehul Choksi, and other companies belonging to both Choksi and Nirav Modi in the National Company Law Tribunal (NCLT), Mumbai.
The petition sought attachment of all assets of the 114 companies promoted by the two jewellers and their families, who are alleged beneficiaries in the Rs 114 billion Punjab National Bank (PNB) fraud case.
According to a ministry source, it has sought ex-parte relief, which is typically meant for extraordinary circumstances. MCA officials along with the ministry’s joint legal director were in Mumbai and requested the tribunal to intervene in the matter on an urgent basis.
ALSO READ: PM Narendra Modi promises strict action against PNB fraud accused
The MCA sought restrictions to be imposed on all securities and assets held by the accused in the matter. While filing the petition, the MCA counsel said four accused — Modi, his wife Ami, brother Neeshal, and maternal uncle Choksi — were the main perpetrators of the fraud and it was essential to freeze their assets in India and overseas.
The petition was filed under Section 221 (freezing assets), Section 222 (imposition of restriction of securities), and Section 246 (pertaining to fraud) of the Companies Act. Ministry officials believe that since multiple agencies are investigating the fraud, properties owned by the accused should be seized.
ALSO READ: Didn't consider PwC for forensic audit post fraud due to Sebi order: PNB
Explaining the rationale behind the urgent petition, the ministry counsel said probe agencies had come across at least 200 shell firms and dummy directors in India and abroad that were being used to route or receive funds as part of the alleged fraud.
Probe agencies are looking into these firms and their transactions.
So it was important, the counsel said, to take over all their assets so that they could not get away from the investigation.
Sources said the MCA also wanted to supersede or take over boards of the companies in public interest, especially minority shareholders, which would be applicable mainly in Gitanjali Gems.
ALSO READ: PNB scam: Meet Firestar's Vipul Ambani, simple CFO in a complex setting
PNB The government may take the Satyam fraud route in Gitanjali case as well and supersede the board and management. The Satyam case had triggered the overhaul of corporate governance guidelines in 2009, and brought various terms and conditions in the appointment of directors such as their tenure, remuneration, and so on. “It had also prompted market regulator Securities and Exchange Board of India (Sebi) to amend the listing agreement to include provisions dealing with the appointment of a chief financial officer,” said a corporate lawyer.
Further, in 2013, the government replaced the Companies Act, 1956 with a new act, which incorporated various new provisions including the role and responsibilities of independent directors, and accountability of auditors, he explained.
ALSO READ: Rs 114-bn PNB scam: Meet Y H Malegam, the man for every season at RBI
Choksi and Modi, the key accused, are being investigated by multiple probe agencies after it came to light that PNB was allegedly cheated of Rs 114 billion through letters of undertaking, with the purported involvement of a few employees of the bank. The Central Bureau of Investigation and the Enforcement Directorate (ED) have registered two first information reports (FIRs) each. So far, the ED has seized assets of both accused and their firms to the tune of Rs 60 billion. Meanwhile, the income-tax department is examining 103 bank accounts, which directly and indirectly belong to both jewellers.
Read our full coverage on Nirav Modi scam at PNB

Come up with an implementable plan to repay dues: PNB to Nirav Modi

Scam-hit Punjab National Bank (PNB) on Thursday asked billionaire diamond jeweller Nirav Modi to come up with a concrete and implementable plan to settle the loss caused to it by the fraudulent issuance of Letter of Undertakings (LoU) through one of its branches.
PNB said this in its response to a mail written by Nirav Modi, who allegedly cheated the bank of Rs 114 billion in connivance with a few bank officials.
ALSO READ: No more clerks please: Only PNB officers can now initiate messages on SWIFT
"You were getting LoUs issued illegally and in an unauthorized way through few bank officials. At no stage such facilities were extended by our bank to your three partner firms," sources said citing mail response sent by PNB General Manager (international banking division) Ashwini Vats to Nirav Modi.
ALSO READ: Scam-hit PNB banks heavily on Bhushan Steel sale for capital boost
When the illegal activities of Nirav Modi surfaced, the bank brought them to the notice of the law enforcement agencies as they apparently violated FEMA and anti-money laundering law, sources said.
"Your commitment and undertaking for sparing of the total liability were not backed by providing upfront amounts and timelines.
However, should you have any concrete and implementable plan, do revert back, the mail said.
ALSO READ: PNB fraud: After Nirav Modi letter, bank hits back; top 10 developments
Nirav Modi in his letter to the bank had said that the over-zealousness on the part of the bank to deal with the issue destroyed his jewellery brand and also jeopardised his ability to clear the dues.
"The erroneously cited liability resulted in a media frenzy which led to immediate search and seizure of operations, and which in turn resulted in Firestar International and Firestar Diamond International effectively ceasing to be going-concerns... This thereby jeopardised our ability to discharge the dues of the group to the banks.
ALSO READ: PNB hits back at Nirav Modi: Filed complaint as your LoUs were illegal
"In the anxiety to recover your dues immediately, despite my offer (on February 13, a day before the public announcement, and on 15, your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues leaving a trail of unpaid debts," Modi said in its letter to the bank.
ALSO READ: After PNB scam, Mehul Choksi defaulted on Rs 1.21 billion to J&K Bank
The Rs 114 billion fraud perpetrated by Modi is being investigated by various investigative agencies including the Enforcement Directorate and the CBI.
Read our full coverage on Nirav Modi scam at PNB

PNB won't breach PCA criteria on capital even in worst case scenario: CEO

In an investors conference call on Friday, PNB MD&CEO Sunil Mehta said the lender aims to fix the current problem (of recently detected Rs 114-bn fraud) within six months and that it had more than sufficient regulatory capital.
"The fraud is a standalone case and no such case has been detected in any other branches," Mehta said.
He said that the state-run lender will not breach Prompt Corrective Action (PCA) criteria on capital even in worst case scenario.
Mehta said the lender has not received any advisory from the Reserve Bank of India yet.
PNB, he said, does not expect any major issues from other branches with respect to Letters of Understanding.
Mehta said the bank’s board is working on a strategy to exit non-core assets.
Read our full coverage on Nirav Modi scam at PNB

PNB scam: Will honour bona fide commitments, says bank chief Sunil Mehta

Punjab National Bank (PNB) Managing Director and Chief Executive Officer (CEO) Sunil Mehta on Thursday broke his silence on the Rs 114-billion alleged scam involving diamond merchant Nirav Modi and his maternal uncle Mehul Chinubhai Choksi, saying the public sector bank (PSB) would honour all genuine commitments to other banks.
The PNB chief also said Modi had come out with “vague offers” to repay the amounts due and had not submitted a concrete plan. He added the total exposure of the bank to the two groups of companies involved was around Rs 1.7 billion.
“We will come out of the present situation. We are in discussions with stakeholders, including other banks that are party to this development. We will resolve it and honour all bona fide commitments with other banks,” Mehta said, during a press conference a day after the country’s second-largest PSB made public that it had detected fraudulent and unauthorised transactions.
The PNB chief, however, dodged a query on whether the bank would be liable to pay up the entire Rs 114 billion detected in the fraudulent transactions that took place using the international financial communication system, SWIFT, bypassing the bank’s core banking system with the help of bank staff at a Mumbai PNB branch.
“We are in discussions with all the lenders. It will be decided after the investigation.
If the entire onus is on us we are not going back on it, but nobody else can be a beneficiary of this also,” Mehta said.
The Central Board of Investigation and Enforcement Directorate are investigating the case on the basis of complaints filed by PNB.
On Wednesday, executives at other banks said the liability arising from the fraud would have to be met by PNB since the payment request to overseas branches of banks, including Allahabad Bank, Axis Bank, and Union Bank of India, was raised by PNB. Allahabad Bank CEO Usha Ananthasubramanian had said the entire exposure was on PNB and did not relate to the client, in this case Modi, Choksi and others.
In a letter to 30 banks earlier this week, PNB partly passed on the blame for the fraud on to foreign branches of Indians banks, saying they had also violated Reserve Bank of India guidelines and bank executives of other banks might also be in connivance with group companies of Nirav Modi and Gitanjali Gems, promoted by Choksi.
In the press conference, the PNB chief admitted that the bank would fully provide for Rs 114 billion, equivalent to one-third of the bank’s market capitalisation. He, however, added, “There is no funded exposure right now. Whatsoever is our liability… that is being worked out during the process, and we will take it forward.”
“Our bank has the capability and the capacity to come out of this situation,” Mehta said.
He said along with the foreign branches of Indian banks, a foreign lender was also involved in “one case”. PNB had held meetings with a “consortium” of a “large number of banks” involved in the alleged scam, he added.
Emphasising the fact that the fraudulent transactions had been taking place since 2011, Mehta maintained that it was a standalone case involving only one of its branches. “We have scanned all our branches and this is a standalone case in one of our branches. We have found no wrongdoing in the other branches,” he said.
Mehta said the bank was already in recovery mode and was trying to “protect the financial interests of all the lenders”. The PNB chief added that he had received a mail communiqué from Nirav Modi last week who told the bank that he would come up with a plan. “We have requested him to come personally and submit a plan in writing for repayment,” Mehta added.