The erosion of capital can be primarily be attributed to over Rs14,000 crore fraud wherein billionaire jeweller Nirav Modi and associates had allegedly acquired fraudulent letters of undertaking (LoUs) from one of the branches of PNB for overseas credit. Photo: Pradeep Gaur/Mint
The erosion of capital can be primarily be attributed to over Rs14,000 crore fraud wherein billionaire jeweller Nirav Modi and associates had allegedly acquired fraudulent letters of undertaking (LoUs) from one of the branches of PNB for overseas credit. Photo: Pradeep Gaur/Mint

Scam-hit PNB’s capital adequacy fall below regulatory requirement

At the end of March, 2018, PNB's total capital ratio as per the Basel- III requirement declined to 9.20% as against 11.66% at the end of March 2017

New Delhi: Fraud-hit Punjab National Bank’s (PNB) capital adequacy has fallen short of the regulatory requirement of Reserve Bank of India due to unprecedented loss in the fourth quarter of 2017-18.

At the end of March, 2018, total capital ratio as per the Basel- III requirement declined to 9.20% as against 11.66% at the end of March 2017. On consolidated basis, it slipped to 9.82% as against 11.98% during the same period.

As per the RBI’s norms, the total capital adequacy, including counter-cyclical buffer should be upwards of 11.5%. So to that extent, there is shortfall as far as capital adequacy of PNB is concerned as on the March 31, 2018.

“...the capital position of the bank as at March 31, 2018 being below the regulatory requirement (including countercyclical buffer) of Reserve Bank of India, Hong Kong Monetary Authority (HKMA) is enhancing the Supervisory arrangements on our Hong Kong branch," PNB said in a regulatory filing.

The erosion of capital can be primarily be attributed to over Rs14,000 crore fraud wherein billionaire jeweller Nirav Modi and associates had allegedly acquired fraudulent letters of undertaking (LoUs) from one of the branches of PNB for overseas credit.

The scam was perpetrated by way of fraudulent LoUs generated in the name of Punjab National Bank. As a result of the country’s biggest fraud, PNB last month posted its largest ever quarterly loss of Rs13,416.91 crore for January-March period, mainly on account of high provisioning for Nirav Modi fraud and bad loans.

The bank paid Rs6,586.11 crore to other banks to discharge its liabilities towards Letter of Undertakings (LoUs) and Foreign Letter of Credits (FLCs) issued fraudulently and in unauthorised manner to certain overseas branches of Indian banks through the misuse of SWIFT system of the bank, which was then not integrated with CBS (core banking solutions).

According to analysts, PNB financial position will get better in the coming quarters as it expects Rs8,000 crore from the recovery in the first quarter itself. Going forwards as the cases under NCLT gets resolve more and more money will flow to the bank and their financial health would improve.

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