In February 2018, PNB reported some employees had colluded with diamond tycoon Nirav Modi, issuing him letters of undertaking (LoUs) without keeping records. The bank filed a complaint with the Central Bureau of Investigation. Modi, whose companies borrowed about $1.5 billion overseas against these LoUs, has since stayed out of India.
PNB will increase disclosures in its March quarter earnings, chief executive S.S. Mallikarjuna Rao said last week. India’s third-largest state-owned lender is gradually trying to build confidence in the market and among people in general about itself and its functioning, he said. “We agree there has been a hit on PNB’s reputation, but it has passed," Rao told analysts at a presentation.
Rao, who took charge of PNB on 3 October 2019, acknowledged that of late, the bank was perceived to be the last in the pecking order and the management wants that to change. “In the peer group of five-six banks, PNB is appearing in the last. Take it from us—the entire top management of PNB—the trend will change by June 2020. The reason is that we would like to completely leave behind the legacy assets by March 2020 by recognizing everything."
Despite recording a loss of ₹492 crore in the third quarter, PNB has performed well since the beginning of this fiscal, said Rao. “The December quarter loss was because of certain reasons like RBI’s divergence provision and certain amount of harmonization provisions."
He said the bank set aside ₹1,500 crore for some loans, which were so far classified differently at United Bank of India and Oriental Bank of Commerce, with which PNB is being merged.
In December, PNB disclosed it had underreported bad loans of ₹2,617 crore and consequent provisions of ₹2,091 crore in FY19, citing an RBI audit.
He explained that maintaining the same level of bad loan classification (standard, substandard and doubtful), is necessary for calculating the share swap ratio and that the Reserve Bank of India had instructed PNB to do so in December.
In July, PNB was the first to inform RBI about a fraud of ₹3,805.15 crore in loans given to Bhushan Power and Steel Ltd. This includes domestic exposure of ₹3,191 crore, $49.71 million at its Dubai branch and $38.51 million at its Hong Kong branch.
Banking experts said that while the steps to turn more transparent were welcome, performance is what matters the most.
According to Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, the first reaction that investors normally have is whether the leadership is likely to take some concrete steps towards correcting errors of the past.
“So, at least there is some assurance in that area provided to investors suggesting there will be steps taken, not just to change the image but provide more disclosures," said Parekh.
He added that ultimately, one has to look at the actual performance. “An effort is important but the outcome is equally important, if not more. Good performance must follow."
The bank reported recovery and upgrade of ₹6,644 crore of loans in the December quarter, and Rao said ₹2,100 crore came from the Essar Steel resolution. “Every quarter, we have been only showing the number of accounts being added to the National Company Law Tribunal (NCLT), but the reduction was comparatively less," he said. “Now, we are confident that the trajectory will go in a better way in terms of recovery."
Rao said he expected resolution of another ₹8,800 crore from a clutch of 17 loan accounts in NCLT, including Bhushan Power and Steel.