New Delhi: Fraud-hit Punjab National Bank (PNB) will not receive any additional capital from the government over what has been budgeted and will have to rely on recoveries of dues under the Insolvency and Bankruptcy Code (IBC) and proceeds from sale of non-core assets, according to a senior government official.
Earlier this month, PNB reported a record net quarterly loss of ₹13,417 crore in the quarter ended March, reeling under payouts to other banks following a $2-billion fraud, tighter loan classification norms by the Reserve Bank of India (RBI) and losses in its bond portfolio.
In the quarter that ended in March, the bank provided for ₹7,178 crore towards payouts to other banks in the ₹14,356 crore scam involving jewellers Nirav Modi and Mehul Choksi.
All this has adversely affected the bank’s capital adequacy ratio. PNB’s capital adequacy ratio as of 31 March was 9.2%, against the regulatory requirement of 9%, casting a shadow of prompt corrective action by RBI.
The pressure on the bank’s books is likely to continue for the next couple of quarters as it provides ₹7,178 crore for fraud related payouts, ₹1,088 crore for losses on the bond portfolio, and ₹190 crore for wage provisions.
All of this has prompted PNB to seek additional capital from the government.
“We have told PNB that they should focus on selling their non-core assets and recoveries from IBC. We will not provide them any additional capital to tide over the provisioning from the fraud. They will get only what has been budgeted,” said the senior official cited earlier, who did not wish to be identified.
PNB is expected to recover some of its dues from Bhushan Power and Steel, the resolution proposal of which is currently being heard by the National Company Law Tribunal.
Bhushan Power and Steel owes more than ₹48,500 crore to a consortium of lenders led by the bank.
PNB is also exploring selling a part of its stake in its life insurance joint venture—PNB Metlife. PNB holds a 30% stake in PNB Metlife. It is also looking to sell or lease its large real estate holdings across Northern India especially in New Delhi.
The government had allocated capital amounting to ₹5,473 crore in 2017-18 to PNB. The bank had also raised ₹5,000 crore through qualified institutional placement in December last year. But all of this capital raising has been wiped out because of the poor financial performance of the bank.
The finance ministry has been reviewing the business plan of state-run banks for the year 2018-19 and charting capital requirements for the financial year. It has held meetings with banks who are under RBI’s PCA as well as other non-PCA banks.
The government had announced a ₹2.11 trillion two-year bank recapitalization plan last year and allocated more than ₹1 trillion in 2017-18.