Scam-Hit PNB’s Capital Adequacy Falls Below Regulatory Requirement
At the end of March, 2018, total capital ratio as per the Basel-III requirement declined to 9.20 percent as against 11.66 percent at the end of March 2017. On a consolidated basis, it slipped to 9.82 percent as against 11.98 percent during the same period.
As per the RBI’s norms, the total capital adequacy, including counter-cyclical buffer should be upwards of 11.5 percent. To that extent, there is shortfall as far as capital adequacy of PNB is concerned as on the March 31, 2018.
“...the capital position of the bank as at March 31, 2018 being below the regulatory requirement (including countercyclical buffer) of Reserve Bank of India, Hong Kong Monetary Authority is enhancing the Supervisory arrangements on our Hong Kong branch,” PNB said in a regulatory filing today.
The erosion of capital can be primarily be attributed to over Rs 14,000 crore fraud wherein billionaire jeweller Nirav Modi and associates had allegedly acquired fraudulent letters of undertaking from one of the branches of PNB for overseas credit.
The scam was perpetrated by way of fraudulent LoUs generated in the name of Punjab National Bank.
As a result of the country’s biggest fraud, PNB last month posted its largest ever quarterly loss of Rs 13,416.91 crore for January-March period, mainly on account of high provisioning for Nirav Modi fraud and bad loans.
The bank paid Rs 6,586.11 crore to other banks to discharge its liabilities towards Letter of Undertakings and Foreign Letter of Credits issued fraudulently and in unauthorised manner to certain overseas branches of Indian banks through the misuse of SWIFT system of the bank, which was then not integrated with CBS (core banking solutions).
According to analysts, PNB financial position will get better in the coming quarters as it expects Rs 8,000 crore from the recovery in the first quarter itself.
Going forwards as the cases under NCLT gets resolve more and more money will flow to the bank and their financial health would improve.