BackPNB classifies its loan exposure to Reliance Home Finance as fraud
PNB is the only bank among the consortium members to tag the account as fraudPNB made the decision following a forensic audit report that highlighted some Reliance Home Finance transactions with other companies in the same group
PremiumPunjab National Bank (PNB) has classified its exposure to Reliance Home Finance Ltd (RHFL) as a fraud account and communicated it to the Reserve Bank of India (RBI), three bankers aware of the development said.
As on 3 July 2019, PNB’s exposure to the company was ₹80 crore.
PNB made the decision following a forensic audit report that highlighted some Reliance Home Finance transactions with other companies in the same group, the bankers cited above said on condition of anonymity. Though Reliance Home Finance had informed stock exchanges on 12 January that the audit found no evidence of diversion of funds, the bankers said PNB still went ahead with the decision.
“The forensic audit report in January was inconclusive. However, we were later informed that the company used its bank loans to repay loans taken by its group entities," said the first banker, adding that following this information, lenders asked the forensic auditor to validate the statement. The second report too could not conclusively establish a fraud, he said, adding PNB still decided to tag it a fraud account based on the forensic audit report.
While emails sent to Reliance Home Finance and RBI on Monday remained unanswered, a PNB spokesperson responded to a text message saying the bank does not comment on individual loan accounts.
Once an account is declared fraud, banks need to set aside 100% of the outstanding loans as provisions, either in one go or over four quarters, according to RBI rules.
Lenders to Reliance Home Finance also include Bank of Baroda (BoB), Axis Bank, Bank of India, Bank of Maharashtra, Canara Bank, State Bank of India and Federal Bank. Lead lender BoB recently invited resolution plans from bidders for Reliance Home Finance on its website. According to the document, total outstanding loans to the company as on 3 July 2019 stood at ₹7,109 crore.
To be sure, PNB is the only bank among the consortium members to tag the account as fraud. Under RBI’s master direction on frauds dated 3 July 2017, the initial decision to classify any standard or bad loan account as red-flagged or fraud will be at the level of the individual bank.
Reliance Home Finance said on 12 January that even before the forensic audit, it had disclosed full details of lending to potential indirectly linked entities to auditors, regulator, lenders, and also in the latest annual financial statements, duly approved by the shareholders at the annual general meeting in September 2019.
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