Photo: Mint
Photo: Mint

Chart of the day: For PNB, life after fraud is still tough

  • In February last year, PNB unearthed a $2 billion fraud committed by jewellers in collusion with some employees
  • Thanks to regulations that allowed losses to be spread over four quarters, PNB provided for the fraud accordingly

What does an unexpected event like a fraud do to a financial entity? Punjab National Bank (PNB) is a fitting case on how an Indian lender can limp back to normalcy, with ample help from regulations, in the aftermath of a debilitating fraud.

In February last year, PNB unearthed a $2 billion fraud committed by jewellers in collusion with some employees. The months that followed saw the balance sheet of the second-largest public sector lender, already smeared with toxicity, become even more so. Dud loans surged and so did provisions, as 100% needed to be provided against the fraud.

Naveen Kumar Saini/Mint
Naveen Kumar Saini/Mint

Thanks to regulations that allowed losses to be spread over four quarters, PNB provided for the fraud accordingly. The adjoining chart shows the bank’s financials in the aftermath of the fraud and incipient signs of recovery are visible.

PNB has indeed turned the corner with all provisions against the fraud been made as of December. But core income too has been sluggish lately, and it remains to be seen if the thrust on retail and small business loans will help turn the tide. As far as recovery of funds from errant borrowers goes, much depends on how insolvency proceedings speed up. And there the outlook is not that sanguine.

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