PNB seen posting huge Q4 loss due to $2 billion fraud, NPAs
Punjab National Bank’s Q4 FY18 result will be under pressure as it will have to make provisions for the PNB fraud-related payouts to other banks
New Delhi/Mumbai: Punjab National Bank (PNB) is expected to post a massive fourth quarter loss on Tuesday as the public sector lender counts the costs of a $2-billion fraud, tighter bad loan norms and higher bond yields.
A Bloomberg poll of 14 analysts estimated, on an average, that the bank will report a stand-alone net loss of Rs3,835 crore in the quarter ended March.
The Delhi-based lender’s earnings will be under pressure as it will have to make provisions for the scam-related payouts to other banks. It will also need to make higher provisions for non-performing assets following a Reserve Bank of India (RBI) diktat on quick recognition of bad debts that has adversely affected the results of other lenders as well.
PNB was hit by a nearly Rs13,000 crore scam allegedly perpetuated by jewellers Nirav Modi and Mehul Choksi in connivance with some bank employees.
Group firms of Modi and Choksi secured loans from international branches of other banks based on letters of undertaking (LoU) issued by employees of PNB. These were not recorded in PNB’s core banking system. The bank issued a total of 1590 LoUs to group firms of Modi and Choksi since 2011. The bank had announced in March that it will honour all these LoUs.
Of this, the bank made payments of Rs6,500 crore to seven banks honouring these LoUs in the March quarter, that is expected to reflect in the quarterly results.
Further, the bank will have to provide for non-performing loans as banks are forced by RBI’s guidelines to reclassify restructured accounts and recognize them as NPAs.
A 12 February RBI circular withdrew a host of restructuring schemes and set a 180-day timeline for resolving stressed loans, forcing banks to recognize these loans as NPAs in their earnings.
Treasury losses due to rising bond yields and gratuity expenses will further weigh in on the bank’s earnings though banks have the option of spreading the provisions across quarters.
State-run banks including Canara Bank, UCO bank, Dena Bank and Allahabad Bank reported massive losses last week.
An analyst with a private brokerage firm who did not wish to be identified said the loss reported may vary depending on the decision of the bank management on whether to spread the impact of the bond losses and gratuity expenses across quarters or provide for the same in entirety in the March quarter.
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