P NB posts biggest bank loss of~134 bn in Q4

Scam-hit Punjab National Bank’s (PNB’s) loss in the fourth quarter of 2017-18 has been the highest quarterly loss reported by any bank in India ever. This was owing to fraudulent loans worth ~143 billion issued to jewellery firms belonging to Nirav Modi and Mehul Choksi.

The Reserve Bank of India’s (RBI’s) new provisioning norms added to the bank’s woes as its net loss ballooned to ~134 billion in the March-ended quarter, compared to a net profit of ~2.6 billion in the year-ago period.

PNB had to make a provisioning of ~102 billion in its books on account of the RBI’s new stressed assets resolution norms and a sum of ~71.8 billion towards the fraud, which is half the amount involved in the scam.

It is the fifth-largest quarterly loss ever for an organisation listed on the stock exchange. PNB’s loss is higher than the combined loss of seven banks — Allahabad Bank, Union Bank of India, Axis Bank, UCO Bank, Oriental Bank of Commerce, Dena Bank, and Bank of Maharashtra during the same period. PNB’s net loss in 2017-18 stood at ~121.3 billion, compared to ~11.9 billion profit in the previous financial year. Shares of PNB fell by 3.8 per cent to end at a 52-week low of ~86.

In a departure from the past, the bank did not hold a post-results press conference, a day after two of its executive directors — Sanjiv Sharan and K V Brahmaji Rao — were stripped of all their functional powers, because their names appeared in the Central Bureau of Investigation’s charge sheet in the Nirav Modi case.

The signatures of the two executive directors were missing on the annual financial results of the bank.

The bank’s fresh slippages — the amount of loans that turned from good to bad — in the full financial year of 2017-18 stood at ~442 billion, against ~224 billion a year ago. As a result, the bank’s capital adequacy ratio slipped to 9.2 per cent as of March 2018, compared to 11.66 per cent a year ago. The bank’s core equity tier1 ratio at 5.96 per cent is slightly above the requirement of 5.5 per cent under the Basel III norms, the international standards for banks to deal with risk management.

The bank’s bad loans, in terms of non-performing assets (NPAs), rose sharply. In January-March, the bank’s gross NPAs surged to 18.4 per cent from 12.11 per cent in the previous quarter. Net NPAs also went up to 11.2 per cent, from 7.5 per cent.

Hit by the scam, the bank has decided to focus on non-traditional banking activities in 2018-19. “We will put special focus on non-interest income, by offering life insurance, mutual funds and other such products to our customers. We will give loans only in cases where the capital requirement is less,” a bank executive said.

PNB’s losses could have been much higher had the RBI not given some relaxation to the Delhi-based public sector bank for spreading its liabilities related to the fraud and wage bills.

The amount related to loans issued to firms controlled by Nirav Modi and Choksi was revised upwards to ~143.5 billion.

The bank, however, has made a 50 per cent provisioning against the fraud, despite the RBI allowing the bank to split the provisioning related to the losses in this case in four equal instalments.

“The RBI has permitted the bank to make provisions against this fraud at 25 per cent, without debiting ‘other reserves’ and provide remaining amount during first three quarters of the ensuing financial year. However, bank has made higher than required provisions at 50 per cent, amounting to ~71.8 billion,” PNB said.

The remaining provisioning of ~71.8 billion will be made during the first three quarters of the present financial year, it added.