India’s second-largest public sector lender Punjab National Bank (PNB) on Thursday declared its ₹3,688.58 crore exposure to mortgage financier Dewan Housing Finance Ltd (DHFL) as fraud.
“A fraud of ₹3,688.58 crore is being reported by bank to RBI (Reserve Bank of India) in the accounts of the company (DHFL). Bank has already made provisions amounting to ₹1,246.58 crore, as per prescribed prudential norms," it said in a stock exchange filing on Thursday, but revised the provisioned amount to ₹1,695.73 crore on Friday.
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.
To be sure, PNB is not the first bank to report a DHFL account as fraud, with the most recent being private sector lender Karnataka Bank in June.
Earlier this year, the National Financial Reporting Authority (NFRA) had started an audit of DHFL accounts and has reached out to its administrator for documents pertaining to the company’s statutory audit for 2017-18.
The Securities and Exchange Board of India (Sebi) has also sought an update on the lender’s transaction audit.
A transaction audit of DHFL by Grant Thornton had indicated instances of “avoidance transactions" by the company.
On 12 February, the report was presented to the administrator, who believes certain transactions were related to undervalued transactions, extortionate (on unfair terms) transactions and fraudulent trading, under the Insolvency and Bankruptcy Code (IBC).
Last November, Mint had reported that lenders have followed the Reserve Bank’s guidelines of reporting suspicious transactions and had red-flagged DHFL’s account.
On 20 November, the RBI had superseded DHFL’s board and later referred the mortgage lender to the National Company Law Tribunal (NCLT).
DHFL is the first non-bank lender to be referred to NCLT under the new rules notified by the government on 15 November.