There were many learnings from fraud, says PNB chairman Sunil Mehta

Mumbai: Punjab National Bank (PNB), which was hit by a $2 billion fraud that surfaced in February, has managed to overcome challenges. In an interview, the bank’s non-executive chairman, Sunil Mehta, said that PNB has now strengthened its internal control processes and is prepared to pursue growth opportunities. Edited excerpts:

What are the changes that are taking place at PNB after the letters of comfort (LoC) fraud discovery?

There were many learnings from that issue as to what we need to address in terms of control processes and audit standards. All of those are being addressed, including the use of technology. The entire back-end was looked at to see what needs to be done so that the back-end becomes much stronger. In terms of reconciliation, or in terms of whatever process that needs to be independently reviewed at the back-end, those have all been institutionalized.

The statutory auditor and concurrent auditors are taking an in-depth look at the weaknesses that were there in the processes that were there. It is a very close interaction between the management, the internal, concurrent and statutory auditors on what rectification needs to be done.

Has PNB honoured the letters of undertaking (LoUs) of other banks?

The statement that the bank had made was that we will honour all bona fide obligations of the LoUs that we had committed to. The total amount of LoUs that were due to banks was $2.07 billion. Of this, we have paid $1.9 billion. This is about eight days old. So I would imagine that whatever was the difference should have been paid in the intervening period.

When this particular issue surfaced, we had to go through all our records and go from 2018 backwards to 2011 to see all the transactions. We had to do the reconciliation. That took time. By end of March, when we finished the reconciliation, prima facie whatever were the bona fide transactions have all been honoured.

What transactions are not bona fide?

If you go into the transaction on the entire buyers’ credit, the way it was structured, the way it was given, we have to look at every element, whether it was completely compliant with all the regulations. The process will take some time. The investigative authorities are doing what they are supposed to be doing. The forensic auditor is looking at the forensic piece. If anything is reported which suggests that there needs to be a further review or dialogue with a counterparty bank, that will be done.

What next for PNB?

The potential for the bank has always been high and continues to be high—strong brand, 7,000 branches. Customer loyalty has been very strong. Despite this issue of the fraud, we had credit growth of close to 10%.

It is an opportunity for us to relook at some of the processes that need to be embellished to make sure that growth from here on is strong and robust and to see how we can position our bank accordingly. We are working on that. It means deciding how we reskill people, how we bring in new technology and use data analytic and artificial intelligence not just in sales but also in risk processes.

We also must make sure we capture the low-hanging fruit… (which) comes from improving our balance sheets through recoveries. The fourth piece is looking at our entire underwriting and sales processes.