Fraud-hit PNB loss widens to Rs 45.32 billion on bad loans, stock falls

Punjab National bank is an Indian multinational banking and financial services founded in 1894 | Photo: Shutterstock
Higher provisioning for bad debts and subdued treasury operations widened fraud-hit Punjab National Bank’s (PNB) net loss to Rs 45.32 billion in the second quarter of the current financial year against Rs 9.4 billion in the previous quarter.

This was the third consecutive quarter where PNB had posted a net loss. The bank saw Rs 134.17 billion net loss in the fourth quarter of 2017-18. That was the first quarter in the aftermath of the Rs 148-billion Nirav Modi-Mehul Choksi fraud that had hit the bank. Since then, PNB has been making net losses. Shares of PNB declined 5.20 per cent to close at Rs 69.05 on Friday.

The bank’s managing director (MD) and chief executive officer (CEO) Sunil Mehta told reporters that 86 per cent of losses accruing to the fraud has been provided for so far. The bank has to still make a provision of more than Rs 20 billion for the losses due to the fraud in the next quarter. The “turbulent conditions” in the treasury market impacted the bank’s profitability, the Delhi-based bank said.

The bank earned Rs 4 billion in the first half of the current financial year against Rs 15 billion in the corresponding period of the previous year.

“If you take out the market movement in interest rate and treasury business, profit from core operations (branches) moved up by over 32 per cent. The fundamental strength of the bank is good,” Mehta said.

The bank’s gross non-performing assets (NPAs) as a proportion of gross advances stood at 17.16 per cent (Rs 812 billion) at the end of September 30, 2018, lower than 18.26 per cent (Rs 828 billion) as on June 30 this year. Gross NPA stood at 13.31 per cent (Rs 576.30 billion) in the second quarter last year.

With the bank is making Rs 77.33 billion provision for NPAs in the second quarter against Rs 49.81 billion in the previous one, net NPAs came down to 8.9 per cent (Rs 382.78 billion) from 10.58 per cent (Rs 438.72 billion) in this period. Net NPAs had stood at 8.44 per cent (Rs 340.7 billion) a year ago. The bank recovered Rs 122 billion of bad loans in the first half of this year compared to around Rs 56 billion in the full financial year of 2017-18. It expects to recover bad loans to the tune of Rs 170 billion this fiscal year.

Mehta said the bank was expecting recoveries from big insolvency cases in the second quarter which have been delayed to the next quarter, impacting the the bank’s finances.

The bank made a provision of 72 per cent for its exposure to accounts, currently under insolvency process in the second quarter of Fy’19. The regulatory requirement is to make a provision of 50 per cent. “This (higher provisioning) will give a lot of comfort to the market as our potential losses are adequately covered,” Mehta said.

It had a total exposure of Rs 293.81 billion till September 30. PNB had an exposure of Rs 81.02 billion in the first list referred by the Reserve Bank of India, and Rs 46.78 billion in the second list.

Bank may opt for consolidation

PNB has told the government that it is more interested in consolidation rather than merging other banks with itself at this stage, MD and CEO Sunil Mehta said.

Speculation was rife that it could be the next candidate with which weaker banks could be merged after announcement of the merger of Dena Bank and Vijaya Bank with Bank of Baroda.

Mehta said the problem with non-banking finance companies (NBFCs) is of credibility and not liquidity. Even if a couple of companies default, it does not mean that there is a systemic liquidity crisis, he added.

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