India’s second largest PSU bank PNB (Punjab National Bank) on Tuesday posted biggest ever quarterly loss by any bank in India, largely due to the crater caused by the Rs 13,000-crore fraud allegedly involving billionaire diamantaire Nirav Modi and his uncle Mehul Choksi. In the January-March reporting period, PNB has parked its major chunk of the earnings to cover as much as 50% of the fraud amount while the remaining 50% will be taken into books in the upcoming three quarters of the current financial year. PNB’s massive loss has flagged concerns among the analysts as the reported figures were weaker-than-expected.
PNB’s biggest quarterly loss
In the January-March period of the financial year 2017-2018, PNB posted the biggest ever standalone net loss of Rs 13,416.91 crore as the country’s fourth-largest bank by asset size made a provisioning of Rs 20,353.1 crore. PNB reported a net profit of Rs 261.9 crore in the corresponding quarter of the previous fiscal year and posted a net profit of Rs 230.11 crore in the previous quarter of current fiscal. PNB’s Rs 13,416.91 crore net loss is the biggest ever quarterly loss in the history of India’s banking sector.
2nd highest NPAs in India
A steep rise was seen in the bad loans, as on 31 March 2018, the gross NPAs (non-performing assets) stood at 18.38% and the net NPAs were at 11.24% of gross and net advances. PNB’s gross NPAs at the end of the quarter were at Rs 86,620.05 crore, up by 56.44% as against Rs 55,370.45 as on 31 March 2017 and 50.59% higher than Rs 57,519.41 crore as on 31 December 2017. Surprisingly, in absolute terms, PNB’s gross NPAs are second-highest among all Indian banks. India’s largest bank by assets SBI reported gross NPAs at Rs 199,141.34 as on 31 December 2017.
At on 31 March 2018, PNB’s borrowings rose 49.28% to Rs 60,850.75 crore from Rs 40,763.34 crore a year ago, whereas other liabilities and provisions jumped 37.51% to Rs 21,678.86 crore as on 31 March 2018 from Rs 15,765.73 crore as at the end of the fiscal year 2016-2017. On the contrary, advances saw a marginal growth of 3.39% to Rs 4,33,734.72 crore as compared to Rs 4,19,493.15 crore. The reserves and surplus came down by 2.76% to Rs 40,522.19 crore as on 31 March 2018 from Rs 41,671.87 crore as at 31 March 2017.
PNB posted a divergence of Rs 2,207.1 crore in gross NPAs and Rs 1,414.9 crore in net NPAs in a sharp contrast between its previously reported figure for the fiscal year 2016-17, and the Reserve Bank of India’s assessment. Following the reclassification, gross NPAs were Rs 57,577.55 crore according to RBI as compared to Rs 55,370.45 crore reported by PNB for the fiscal year 2016-2017.
Fraud amount rises
- In January-March quarter, India’s biggest banking fraud unwound at PNB. Initially, the fraud amount was around Rs 11,400 crore which later got escalated to Rs 13,600 crore (approx) after PNB began to investigate the roots of the scam. The fraud was detected at the Brady House branch of Mumbai. The fraud saw the issuance of unauthorised and fraudulent LoUs (Letter of Understandings) and Foreign Letter of Credit (FLCs) to Nirav Modi group companies by rogue PNB employees. These so-called fake LoUs were used to obtain buyer’s credit from several foreign domestic lenders outside India.
- Now, PNB is said to be liable to pay money to those banks who have issued buyer’s credit to Nirav Modi and Mehul Choksi group companies. Taking this into consideration, Rs 6,586.11 crore has been paid by PNB on the undertaking of banks concerned on account of LOUs/FLCs which were due up to 31 March 2018.
- “The liabilities on account of LOUs/ FLCs which became due up to 31.03.18 amounting to Rs 6,586.11 crore have been paid by the Bank on the undertaking of concerned banks that they will reimburse the amount to the Bank if the court of competent jurisdiction or an investigation agency under Indian laws finds such LOCs/FLC, to have been issued pursuant to the knowledge of the alleged fraud or collusion in the alleged fraud by any existing or past officials/ employees of the concerned banks,” PNB said in a statement.
- Further, as a prudent measure, PNB has parked a sum of Rs 6,959.79 crores to cover liabilities in the books in respect of LOUs/FLCs which are becoming due after 31 March 2018. “Bank will make payments to the concerned banks on the due dates of LOUs/FLCs,” PNB said in a statement.
- After making requisite adjustments, the fraud amount now stands at Rs 14,356.84 crore. With respect to RBI order, PNB was allowed to make provisions against the fraud at 25% in four quarters. In connection with the same, PNB has made higher than required provisions at 50% amounting to Rs 7,178.42 crore. “Remaining provision of Rs 7178.42 crores will be made during the first three quarters of the ensuing financial year in terms of RBI’s dispensation,” PNB said in a statement.