July 04 2020
Bankers face off over scam liability
19 February 2018

Impaired loans of the banking sector may rise to more than ₹20,000 crore

Senior officials of banks that were impacted due to the ₹11,500-crore fraud in Punjab National Bank had a face-off when they met on Saturday to discuss about who should bear the liability.

According to sources close to the development, PNB has taken a stand of not paying its dues to others banks till the investigations are over.

If PNB does not pay in time, bad loans arising out of the scam will increase since other banks that have extended loans to PNB would have to classify their exposure as “non-performing.”

However, other banks did not agree with PNB’s stand and said since the Letters of Undertaking (LoUs) were issued by PNB to the buyers, the onus was on PNB. “In our books, we have extended the loan to PNB. So, if PNB do not pay in time, our exposure to PNB will have to classified as NPA.”

In case PNB does not pay other banks on time, the impaired loan amount could rise to ₹20,000 crore. PNB, however, blamed the other banks by saying that the LoUs were opened in favour of overseas branches of Indian banks for a period of one year. But RBI norms say that the total time period allowed is 90 days from the date of shipment. This stipulation had been overlooked.

RBI, in a statement, attributed the failure of the internal control of PNB for the fraud. The central bank had said that it was assessing the situation and would take appropriate supervisory action. The banking regulator said it had already undertaken a supervisory assessment of control systems in PNB and would take appropriate supervisory action.

PNB MD & CEO Sunil Mehta had said that PNB’s liability would be worked out after the investigation is over.

On Wednesday, PNB informed the stock exchanges about the detection of $1.77 billion (₹11,500 crore) unauthorised transactions, where fraudulent letters of undertaking (LoUs) were issued from a branch in Mumbai to secure overseas credit.

Govt. to buy PNB shares

The government will infuse capital in PNB on a preferential basis by buying shares at ₹161.38 per share of ₹2 each, which would be 28.43% more than its closing share price on Friday, according to an EGM notice.

The government will infuse a total of ₹5,473 crore. In the last three trading sessions, shares of the lender slumped by 22.3%.



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