Punjab National Bank reported the biggest-ever quarterly loss in Indian banking history, partly a fallout of the Rs 14,000-crore fraud involving jewellers Nirav Modi, Mehul Choksi and their firms. The Reserve Bank of India’s new stressed asset framework also added to the bank’s pain.
The bank reported a net loss of Rs 13,417 crore in the fourth quarter ended March compared to a profit of Rs 262 crore in the year-ago period, the state-run lender said in an exchange filing. The reported loss is much higher than the Rs 3,835 crore estimated by analysts tracked by Bloomberg.
What Contributed To The Loss
The net loss was a result of a surge in non performing assets and provisions.
- Gross NPAs rose to Rs 86,620 crore in Q4 compared with Rs 57,519 crore in Q3.
- Rs 7579 crore in gross NPA addition was due to the Nirav Modi fraud; Rs 10,237 crore was due to RBI’s new stressed asset circular.
- Gross NPA ratio rose to 18.38 percent compared with 12.11 percent in Q3.
- Net NPA ratio rose to 11.24 percent compared with 7.55 percent in Q3.
- The bank set aside Rs 20,353 crore as provisions compared to Rs 4,467 crore in Q3.
- Provisions for bad loans stood at Rs 16,203 crore compared to Rs 2,996 crore in Q3.
- The bank took a tax write-back of Rs 7,384 crore, failing which the loss would have been larger.
The bank said that provisions worth Rs 3,120 crore have been made against accounts where stressed asset schemes were under implementation. The RBI, in a February circular, had withdrawn existing stressed asset schemes and asked banks to re-classify these accounts as bad loans if the implementation of these schemes was not yet complete.
On account of volatility in bond prices, the bank made a provision of Rs 741 crore but it chose to defer provisions of Rs 1,088 crore to subsequent quarters. This has been permitted by the RBI.
Overall, the bank’s provision coverage ratio stands at 58.4 percent.
As a result of the high provisions, the bank saw its capital adequacy ratio dip below the minimum laid down by Basel-III norms. It fell to 9.2 percent compared to the regulatory requirement of 11.5 percent. The core equity tier-1 ratio of 5.96 percent is marginally above the regulatory minimum of 5.5 percent.
Accounting For The Nirav Modi Fraud
The total amount involved in the fraud now stands at Rs 14,347 crore, said the bank. This includes credit given out against Letters of Undertaking and amounts under other credit facilities given to entities related to the Nirav Modi group.
According to the notes accompanying the earnings release:
- Liabilities worth Rs 6,586.1 crore were paid by the bank on account of LoUs that matured as of March 31, 2018.
- The bank created liabilities worth Rs 6,959.8 crore for LoUs that come due after March 31, 2018.
- The bank has made provisions of Rs 7,178 crore—amounting to 50 percent of the fraud amount. The remaining would be provided for over three quarters.
Shares of the fraud-hit lender fell as much as 5.8 percent to Rs 84 apiece after the results announcement. The stock has fallen 47.6 percent so far this year compared to a 5.2 percent rise in the benchmark S&P BSE Sensex Index.
Watch this interview with Kartik Srinivasan, group head of financial sector rating at ICRA and former ICAI President Santhana Krishnan.