Punjab National Bank's FY19 plans fail to convince finance ministry

While downgrading PNB's rating, Moody's Investors Service said the bank would need ~120-130 billion in 2018-19 to meet regulatory requirements

Unhappy with projections for 2018-19 made by Punjab National Bank (PNB) in a presentation, the finance ministry has asked the fraud-hit lender to give another presentation with “realistic numbers”, sources said. The department of financial services (DFS) held a meeting with the top management of PNB on Thursday, following fears that the bank may slip into the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA).

PNB Managing Director and Chief Executive Officer Sunil Mehta and its general managers gave a presentation to DFS officials on their turnaround plan. Sources said the bank told the DFS it expected 15 per cent growth in credit in 2018-19. “This looks unrealistic as there are capital constraints that the bank is facing due to high provisioning and the Rs 143-billion fraud. So, the bank will likely give another presentation next week,” sources said. The bank also asked the ministry for a higher share of capital allocation under the second round of recapitalisation in 2018-19, sources said. 

Recently, rating agency Moody’s Investors Service said PNB would need Rs 120-130 billion in 2018-19 to meet regulatory requirements, while downgrading its rating. It said the rating may be upgraded only if the government infuses higher capital in the bank “or any actions taken by the management” improves the bank’s capitalisation to a level similar to other public sector banks.

Under the first tranche of recapitalisation last year, the government infused Rs 800 billion through bonds in public sector banks (PSBs). The Centre plans to infuse around Rs 1 trillion in PSBs this financial year. Last year, PNB received Rs 54.7 billion — the second-highest capital infusion among the comparatively healthier banks or those which are not under the PCA framework.

PNB told the DFS it expected Rs 100 billion worth of recovery from the cases pending at the National Company Law Tribunal (NCLT) in 2018-19. The bank has an exposure of roughly Rs 110 billion in the RBI’s first list of accounts and Rs 65 billion in the second list of accounts.

The DFS advised the bank “to curb all avoidable expenses, dilute or sell stakes in subsidiaries, sell non-core assets and focus on recovery”, sources said.

“There is a fear that the bank may slip into PCA and it will not go down well with the market. We want to ensure that the bank has a plan in place to come out of the mess in this financial year,” a finance ministry official said.

PNB also told the DFS that it would aim to divert its loan portfolio towards low-risk sectors. The DFS raised concerns over the high level of non-performing assets (NPAs) at PNB.

In the March quarter (Q4), the bank’s gross NPAs surged to 18.4 per cent from 12.11 per cent in the previous quarter. Net NPAs also went up to 11.2 per cent from 7.5 per cent. A net NPA level above 6 per cent is a trigger for the RBI to consider putting a lender under PCA to restore their health. Last week, PNB reported the highest-ever quarterly loss (Q4 2017-18) reported by any domestic bank — owing to fraudulent loans worth Rs 143 billion issued to jewellery firms belonging to Nirav Modi and Mehul Choksi. The Delhi-based bank’s net loss surged to Rs 134 billion in Q4, compared to a net profit of Rs 2.6 billion in the year-ago period.