Finance ministry hopeful of PNB rebounding in Q1

New Delhi: The finance ministry is hopeful of Punjab National Bank, which has been defrauded to the tune of Rs 13,000 crore by two diamond merchants, making a quick recovery in the first quarter of the current fiscal. The government is also confident that the downgrade rating on the bank would be revised soon.

The ministry is keeping a tight watch on the bank’s performance so as not to let the bank slip into further mess. The government is said to have been communicated this by the bank management.

The ministry believes though the bank has to improve on the core operating performance, the strong 17 per cent growth in loan book is a positive sign.

Punjab National Bank (PNB) chairman Sunil Mehta is said to have set a six-month timeline to overcome the Nirav Modi mess. He also wants the bank to be on track with no shade of the scam on its performance and businesses within this timeframe.

PNB had reported a whopping Rs 13,000 crore fraud and later had to honour the commitment of Letters of Undertaking (LoUs) which were issued to foreign branches of Indian banks that extended loans to alleged fraudsters Nirav Modi’s and his uncle Mehul Choksi’s firms.

Official sources said the impact of the fraud is not yet visible on the PNB balance sheet. Honouring of the liabilities (LoUs) is likely to dent the PNB’s Q4 profitability which could also be hit by NPAs and rising yields.

But there would be a strong comeback in the first quarter onwards the as the bank will look to raise more money from sale of non-core assets including stake sale in subsidiaries and monetisation of the large real estate holdings.

PNB will also look to further tighten its processes and rationalise the branch network for cost efficiencies. The bank, according to the ministry, has been recording double-digit credit growth. In January the bank sold its entire stake in a mutual fund joint venture to partner Principal Financial Group. The state-owned bank has offloaded 21.38 per cent to the US-based financial services group,

which will now hold 100 per cent in the asset management company. The bank also received Rs 1,231 crore by diluting its holding in PNB Housing Finance Co. The ministry is also banking on the developments at NCLT to get recoveries from NPAs.

Global rating agency Fitch had said that losses related to the fraud would act as a drag on PNB's overall credit profile over the next year or two and will immediately increase the bank's non-performing asset (NPA) ratio and credit costs. Fitch has downgraded the viability rating of Punjab National Bank to 'bb-' from 'bb' and has maintained its negative watch.