Mumbai/Bengaluru: Punjab National Bank (PNB) reported a Rs134.17 billion fourth-quarter net loss Tuesday, the biggest ever by an Indian lender as the state-run bank booked provisions to cover a massive fraud.
In what has been dubbed the largest fraud in Indian banking history, PNB – the second-biggest state-run lender and fourth-biggest overall – disclosed in February that two jewellery groups had defrauded it of more than $2 billion, raising credit overseas from mostly other Indian banks with fake guarantees issued by rogue PNB staff.
Police Monday charged 22 people, including a former head of PNB and two of its current executive directors. A source familiar with the matter said more people were likely to be charged this week.
PNB said Tuesday it had set aside a higher-than-required Rs71.78 billion in the three months to March 31, or half of the total Rs143.57 billion it owes other banks for the illegal guarantees. That led to a more than tripling of its total provisions from a year earlier to Rs203.53 billion. The bank, which has been allowed by the Reserve Bank of India (RBI) to spread the fraud-related provisions over four quarters, said it would set aside the remaining money over the three quarters beginning April 1.
Some analysts expressed concern that the size of the losses, coupled with surging bad debts across the Indian banking sector, might weaken PNB’s capital reserves to the extent it could damage the bank’s growth prospects.
PNB’s capital ratio fell to 9.2 percent at the end of March from 11.66 per cent a year ago, according to a PNB presentation.
“Their capital is very low, and a bank needs it to sustain growth,” said Yuvraj Choudhary, an analyst at Mumbai brokerage Anand Rathi, who said PNB’s reported loss was more than triple his estimate, calling it a “major concern”.
PNB shares ended down 3.8 per cent, their lowest close since June 13, 2016, having fallen as much as 6.4 per cent after the results. The stock has lost almost half of its value this year making it the worst performer among Indian bank stocks.
PNB, which raised Rs50 billion from a share sale in December and has received nearly Rs55 billion from the government as part of a $32 billion bank recapitalisation programme, has said it is adequately capitalised for now. It is looking to raise more capital, including via asset sales.
Earlier this month, PNB said it was targeting growth of over 10 percent in loans and deposits in 2018/19 and that it had strengthened the process of credit underwriting and upgraded its systems to prevent further frauds.
PNB’s latest loss compared with a net profit of Rs2.62 billion a year ago, and was higher than a Rs53.67 billion loss it reported in the March 2016 quarter that had been the highest in India’s banking sector.