Government asks PNB to accelerate sale of non-core assets
5 June 2018: The finance ministry asked deception-hit Punjab National Bank (PNB) — which afflicted by the worst-ever losses by any lender in the country’s banking history in the March quarter —to accelerate the sale of non-core forte and step up retail impart to cut imprudent reliance on communal banking, as part of reforms to turn the corner prior, sources told FE. PNB provide two presentations to the finance ministry recently on its financial health status and disclosed concrete plans for a fast turnaround, said the sources. “The bank was called for a second time, as the ministry wasn’t too influenced with its first presentation,” said a source.
The Reserve Bank of India (RBI) has asked PNB to mold it and show improvement in its financial parameters, preferably by June 15, said another source. This means the bank is unlikely to be put under the prompt corrective action (PCA) framework instantly. The government also doesn’t see its incorporation in the list of PCA banks as yet, alert of the role of one-off factors like the deception in its capital erosion.
The bank could gather Rs 13,000 crore from the sale of non-core assets, divestment of stake in adjunct and the second tranche of capital infusion by the end of September, according to a senior government official. PNB will sell its property at Bhikaji Cama Place in Delhi and a part of its stake in PNB Housing Finance to muster resources.
Besides, recovery from loans and bad assets that are undergoing breakdown proceedings will also uplift the bank’s capital. In the first round of the massive capital infusion by the government in 2017-18, PNB had received Rs 5,473 crore, the highest among state-run lenders (after SBI) that are not under the PCA. PNB suffered losses of Rs 13,417 crore in the last quarter, as provisioning quadrupled succeding the fraud of Rs 14,357 crore involving jewelers Nirav Modi and Mehul Choksi and the RBI’s withdrawal of a half a dozen earlier bill restructuring schemes.
While it already set apart funds to cover half the fraud losses in the March quarter, it has in mind to make provisions for the rest in the next three quarters. Its June quarter results will be keenly watched by both the regulator and the government for a realistic assessment of its performance. Any further decrement in its operational regulation could spell trouble for it.
Despite a squirt in net bad loans in the March quarter to 11.24% from 7.81% a year earlier, what has gone in favour of the bank is that before the fraud was detected, PNB had recorded profits of Rs 1,134 crore in the first three quarters of the last fiscal, better than many of its peers. The bank is now looking at strengthening its retail push now. On a reinforced basis, its retail banking assets accounted for 20% of its overall exposure as of March, while corporate/wholesale banking made up for 44%.