Tag: punjab national bank

RBI imposes Rs 6 cr penalty on BoI, PNB, BFSI News, ET BFSI

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MUMBAI: The RBI on Monday imposed penalty aggregating to Rs 6 crore on Bank of India and Punjab National Bank for contravention of norms, including one related to “Frauds – Classification and Reporting”.

A penalty of Rs 4 crore has been imposed on Bank of India and Rs 2 crore on Punjab National Bank.

In a statement, the RBI said the statutory Inspection for Supervisory Evaluation (lSE) of Bank of India was conducted with reference to its financial position as on March 31, 2019.

The bank had also conducted a review and submitted a Fraud Monitoring Report (FMR) dated January 1, 2019 pertaining to detection of fraud in an account.

Examination of the risk assessment report pertaining to the ISE and the FMR revealed non-compliance with/contravention of directions, viz., breach of stipulated transaction limits; delay in transfer of unclaimed balances to DEA Fund; delay in reporting a fraud to RBI and sale of a fraudulent asset, the statement said.

In a separate statement, the Reserve Bank said the statutory ISE of Punjab National Bank was conducted with reference to its financial position as on March 31, 2018 (ISE 2018) and March 31, 2019 (ISE 2019).

The examination of the risk assessment reports pertaining to ISE 2018 and 2019 revealed non-compliance with/contravention of the aforesaid directions, viz., delay in reporting of frauds and not ensuring data accuracy and integrity while submitting data on CRILC platform/ to RBI, it said.

In both cases, notices were issued to show cause as to why penalty should not be imposed on them for such violations of the directions.

The RBI, however, added that the penalties have been imposed based on the deficiencies in regulatory compliance and are not intended to pronounce upon the validity of any transaction or agreement entered into them with their customers.



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Punjab National Bank posts ₹586 crore profit in Q4, BFSI News, ET BFSI

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MUMBAI: Punjab National Bank reported a net profit of Rs 586 crore for quarter ended March 2021 as compared to a loss of Rs 697 crore in the corresponding quarter last year. For the full year, the bank reported a net profit of Rs 2,022 crore compared to Rs 336 crore in corresponding quarter last year.

The amalgamation of Oriental Bank of Commerce and United Bank of India came into effect on 1st April 2020 and figures are not comparable. If the audited numbers of three banks were aggregated the loss for the third quarter in the previous year would stand at Rs 10,127 crore while the full-year loss would have been Rs 8,311 crore.

Announcing the results, the bank’s MD CH SS Mallikarjuna Rao said the bank ended the year with a deposit of Rs 11,06,332 crore while advances rose to 6,74,.230 crore.

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Punjab National Bank to divest stake in Canara HSBC OBC Life Insurance, BFSI News, ET BFSI

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Punjab National Bank (PNB) will divest its stake in Canara HSBC OBC Life Insurance Co, the lender said on Saturday.

The city-headquartered state-owned bank had acquired a stake in the life insurer post amalgamation of the erstwhile Oriental Bank of Commerce (OBC) into itself last fiscal year.

“The bank intends to divest its stake in Canara HSBC OBC Life Insurance Co. Ltd, an associate of the bank, at an appropriate time depending upon market conditions and available options,” PNB said in a regulatory filing.

The erstwhile OBC held 23 per cent stake in the life insurer, which by virtue of amalgamation has come to PNB.

Canara Bank owns 51 per cent stake, while HSBC Insurance (Asia Pacific) Holdings Ltd as a foreign partner owns 26 per cent.

PNB, however, has not disclosed how much stake it will dilute in Canara HSBC OBC Life Insurance.

It is also a promoter of another insurer PNB Metlife Insurance, owning the highest stake of 30 per cent. The company was set up in 2001, in which other shareholders include US-based Metlife with 26 per cent, Elpro (21 per cent) and M Pallonji & Company (18 per cent).

As per extant insurance guidelines of Insurance Regulatory and Development Authority of India (Irdai), one promoter cannot hold more than 10 per cent stake in two insurance ventures.



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Private banks see 21% jump in frauds as online frauds rise, BFSI News, ET BFSI

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The public sector banks seem to have learnt a lesson from the multi-billion dollar Punjab National Bank scam and worked to put their processes in order.

The number of frauds in PSBS fell 34% during fiscal 2020-21, more than double the overall 15% decline in frauds in the banking system. Interestingly, frauds in private banks rose 21% during the period, according to the RBI annual report for fiscal 2021.

The share of PSBs in total fraud value shrank to 59.2% this fiscal, from 80% in fiscal 2020, while it rose to 33.5% in the case of private sector banks this fiscal. In fiscal 2020 private banks had reported a 18.4% share.

The RBI in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

Online frauds rise

The number of frauds in the online space shot up 34.6% at the end of March 2021. About 99% of the total frauds reported in the fiscal year gone by were from the advances category in value terms. However, the value of frauds in the advances category remained almost the same as compared to the last year and the incidence of frauds in the advance category have come down over the previous year.

In value terms, private banks reported a rise of 35% y-o-y in frauds during FY21, and PSBs have reported a decline of 45%.

The average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21. However, in respect of large frauds of Rs 100 crore and above, the average lag was 57 months for the same period. In terms of area of operations, frauds have been occurring predominantly in the loan portfolio (advances category), both in terms of number and value, RBI said.

Reducing frauds

In the current fiscal, the central bank is looking at enhancing the fraud risk management system, including improving the efficacy of early warning signal (EWS) framework, fraud governance and response system. This includes augmenting the data analysis for monitoring of transactions, introduction of dedicated market intelligence (MI) unit for frauds and implementation of automated unique system generated number for each fraud.

For an account declared fraud, banks have to make 100% provisioning of the outstanding loans, spread over up to four quarters.



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Canara Bank appoints Brij Mohan Sharma as Executive Director, BFSI News, ET BFSI

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Brij Mohan Sharma, Executive Director, Canara Bank

Canara Bank has appointed Brij Mohan Sharma as the new Executive Director.

Brij Mohan Sharma is a B. Com Graduate (Gold Medalist), M. Com (Business Admin, Medalist), and CAIIB.

He joined Oriental Bank of Commerce in 1983 and has risen to the level of Chief General Manager in Punjab National Bank. During his 37 Years of long banking career, he has worked in various capacities. He was the Regional head of Pune and Bhopal. He was also Cluster Monitoring Head, Branch Business, Western India, and Vertical Head of Inspection and Control.

He has rich experience in all Segments of Banking including Branch Banking, Corporate Credit, Retail Credit, Inspection and Audit Division, etc.

He has taken charge as Executive Director of Canara Bank on 19.05.2021.



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PSBs are on an upswing, but have they really buried the past?, BFSI News, ET BFSI

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The stock market has turned bullish on public sector banks amid growing expectations that their asset quality woes have hit the trough.

The State Bank of India results announcing a reduction in bad loan pile has fuelled the euphoria. But experts say public sector banks are still wobbly despite the outlook as Covid stress has brought renewed challenges for them.

What’s up?

Traders have mounted derivative bets on state-owned banks encouraged by the recent run-up in share prices. The outstanding positions in futures contracts of public sector lenders such as SBI,

Punjab National Bank and Bank of Baroda have shot up, especially after strong March quarter results from SBI last week.

The open interest in Bank of Baroda futures by number of shares is at a lifetime high and in SBI it is at the highest since September 2020. SBI shares touched a lifetime high of Rs 427.70 on February 18 this year are near that mark.

Nifty PSU Bank index gained 2% to close at 2,398.15 on Monday, with Punjab National Bank, Central Bank and Union Bank and SBI gaining 2-5%.

In the ongoing May series, SBI’s shares are up 14.6% while Bank of Baroda’s shares have risen nearly 22%. Punjab National Bank’s shares are up 13.5% during the same period.

The red flags

While the banks have cleaned up their books, mostly on the basis of write-offs, and posting robust numbers they may be staring at a renewed stress.

Banks are facing greater stress in smaller towns, more so the public sector banks as they have a bigger presence there.

The special mention accounts of public sector lenders are increasing, showing a rise in new stress as Covid buffets smaller businesses.

SBI’s SMA accounts where repayments are overdue more than a month totalled Rs 11,500 crore, while Bank of Baroda and Punjab National Bank had also reported build-up of these accounts for the December quarter during in QIP documents.

Credit growth has been falling for the last few years and totalled 5.58% for FY21 as against 6.02% for FY20. This credit growth is mostly cornered by the private banks, with PSBs seeing a sharper fall in credit growth

While PSU banks have reduced their bad loan pile mostly through write-offs, the recovery from such accounts is abysmal at less than 30%. In FY20, about 25% bad loans were written off. SBI wrote off Rs 32,000 crore in FY21, which is 23% of its total bad loans.

Comparison with private lenders

PSU bank shares have mostly been underperformers vis-à-vis their private-sector peers in the past decade because of high nonperforming loans (NPLs) and loss of market share. The superior performance by private sector banks pushed their valuations to record levels.

The Nifty PSU Bank index is down 11.6% in the past three years, while the Nifty Private Bank Index is up 23%. The Nifty index is up 43.1% in the same period.

PSU banks including Bank of India, Punjab National Bank, Bank of Baroda and UCO Bank among others are trading at a Price to Book (P/B) of around 0.55-0.7 times. SBI is trading at P/B ratio of 1.6 times.

In comparison, private lender HDFC Bank is trading at 4.1 times and Kotak Mahindra Bank at 5.5 times.



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Bad bank to kick off with 80 NPAs worth Rs 2 lakh crore, BFSI News, ET BFSI

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Banks are likely to transfer about 80 large NPA accounts for the resolution to National Asset Recons­tru­ct­ion Com­pany (NARCL), which is expected to be operational by next month.

NARCL is the name coined for the bad bank announced in the Budget 2021-22. A bad bank refers to a financial institution that takes over the bad assets of lenders and undertakes resolution.

Finance Minister Nirmala Sitharaman in the Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. “An Asset Recon­struction Company Limited and Asset Management Com­pany would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech.

Last year, the Indian Banks’ Association (IBA) had made a proposal for the creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for ARC and asset management company (AMC) model for this.

The process

The size of each of these NPAs accounts is over Rs 500 crore and the banks have identified about 70-80 such accounts to be transferred to the proposed bad bank, sources said. It is expected that NPAs over Rs 2 lakh crore will move out of the books of the banks to the bad bank.

The company will pick up those assets that are 100 per cent provided for by the lenders. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation.

NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

The government guarantee would be invoked if there is a loss against the threshold value.

The loans identified by the Indian Banks’ Association include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.

No fraud loans

The Reserve Bank of India (RBI) has said that loans classified as fraud cannot be sold to NARCL. As per the annual report of the RBI, about 1.9 lakh crore of loans have been classified as fraud as of March 2020.

To facilitate the smooth functioning of asset reconstruction companies, the RBI last month decided to set up a panel to undertake a comprehensive review of the working of such institutions.

After enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for ARCs were issued in 2003 to enable the development of this sector and to facilitate the smooth functioning of these companies.

Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.



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Power finance companies likely to be promoters of the bad bank, BFSI News, ET BFSI

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The National Asset Reconstruction Company (NARC), or the bad bank, is likely to be promoted by Power Finance Corporation and Rural Electrification Corporation.

While all major public sector banks will invest in the NARC, they will be holding a stake of below 10%. The power finance companies will hold more than 10%

The Reserve Bank of India is reluctant to allow banks to float another ARC to which they will sell their bad loans.

Padmakumar M Nair, Chief General Manager of Stressed Assets Resolution Group at SBI, will head the National Asset Reconstruction Company Ltd, the proposed bad bank for taking over stressed assets of lenders.

Nair has been picked up for the CEO post of the proposed bad bank NARCL as he has a long exposure of handling resolution of stressed assets. He will be joining the company on a deputation basis for the moment. Finance Minister Nirmala Sitharaman in the budget for 2021-22 had announced that an asset reconstruction company or a bad bank would be set up to consolidate and take over existing stressed assets of lenders and undertake their resolution. A bad bank refers to a financial institution that takes over the bad assets of lenders and undertakes resolution.

Most of the large public sector banks in India have a stake in an existing ARC. SBI is the largest shareholder in Arcil with IDBI Bank, ICICI Bank and Punjab National Bank holding a significant stake. Another firm Asrec is owned by Indian Bank, Bank of India, Union Bank and LIC.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.

The asset transfer

The Indian Banks’ Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore that can be transferred to the proposed National Asset Reconstruction company (NARC) or bad bank.

It has asked its member banks asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a National Asset Reconstruction company.

The loans identified by IBA include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.



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PNB report higher stress levels a year after merging two banks, BFSI News, ET BFSI

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Ahead of its plan to raise funds via qualified institutional placement, Punjab National Bank (PNB) has revealed a pile of stressed loans.

As of December, the lender had 13.2% of loans with repayment overdue for more than one month.

It had a gross bad loan ratio of over 14% for the December quarter with most stressed segments being corporate loans and small businesses. MSME dominated loans those where repayments are overdue for more than thirty days or SMA loans.

PNB’s ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020, according to the offer document issued by the bank. It witnessed a sharp increase in its stressed loans during the moratorium period last year.

SMA accounts

The special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020, from 2.74% as on September 30, 2020.

The SMA loans as of December 31, 2020, also include loans that were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020.

With the stay vacated on March 23, these loans are likely to slip into NPAs as of the March quarter of FY21.

About 2.89% of MSME advances were classified as SMA 2 while 2.72% loans in the corporate sector were unpaid between 61 and 90 days.

In Bank of Baroda‘s offer document too, the bank’s SMA ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020.

These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. Segment-wise, SMA2 for PNB is nearly double that of BOB in the retail and corporate sector.

The QIP

PNB board has approved raising equity capital from qualified institutional investors to enhance its capital base. For the Qualified Institutional Placement (QIP) purposes, the bank has fixed the floor price at Rs 35.51 per equity share. The ”Relevant Date” for the purpose of the QIP is May 10, 2021 and accordingly the floor price in respect of the aforesaid QIP, based on the pricing formula as prescribed under SEBI ICDR Regulations is Rs 35.51 per equity share, PNB said in a regulatory filing.

The merger

Last year, Oriental Bank of Commerce (OBC) and United Bank of India (UBI) were merged into Punjab National Bank (PNB), making PNB India’s second-biggest public sector bank after State Bank of India (SBI).

In a first three-way amalgamation, Vijaya Bank and Dena Bank were merged with Bank of Baroda from April 1, 2019.



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PNB’s 20% loan accounts had payment overdue till December ’20

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“The differences are wider if we include the stock of NPAs as well. The differences in NPAs in retail, housing and auto loans points towards a weaker credit profile for PNB compared to SBI/BoB,” KIE said in a note on Tuesday.

Punjab National Bank’s (PNB) ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020. An offer document issued by the bank showed that the share of special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020 from 2.74% as on September 30, 2020.

To be sure, the SMA category of loans as of December 31, 2020 also includes loans which were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020. These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

The stress on PNB’s book was most evident in the micro, small and medium enterprises (MSME) category, where 2.89% of domestic advances were classified as SMA 2. Trailing it closely was the corporate sector, where 2.72% of loans were overdue between 61 and 90 days.

Similar signs of incipient stress were earlier observed in a Bank of Baroda (BoB) offer document, which showed that the bank’s SMA ratio surged to 21.57% as on December 31, 2020 from 8% on March 31, 2020. However, PNB’s situation could be a little more worrying than that of BoB, considering that its gross NPA ratio stood at 12.99% at the end of Q3FY21, as against the latter’s 8.48%.

Analysts at Kotak Institutional Equities (KIE) observed that while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. While there is little difference between the two in the corporate segment, wide gaps emerge between the two banks in the SMA-2 profile across retail (11% for PNB vs 6% for BoB), MSME (16% for PNB vs 9% for BoB) and agriculture (8% for PNB vs 3% for BoB).

“The differences are wider if we include the stock of NPAs as well. The differences in NPAs in retail, housing and auto loans points towards a weaker credit profile for PNB compared to SBI/BoB,” KIE said in a note on Tuesday.

The Reserve Bank of India (RBI) has earlier warned about an impending rise in system bad assets. Loan losses in the banking sector, as measured by the gross NPA ratio, could nearly double to 13.5% by September 2021 in a baseline scenario, and to as high as 14.8% in a severe-stress scenario resulting from the pandemic, the regulator had said in the December 2020 edition of its financial stability report (FSR).

There are fresh concerns on the state of credit quality in the financial system in light of the ongoing second wave of Covid. According to KIE, the current cycle is unlikely to be as painful as the corporate NPA cycle. At the same time, recovery in growth and profitability is set to be deferred as a consequence of the second wave.

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