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Clean-up act: Banks may give PNB short-term loans

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pnb, punjab national bank, public bank, PSB, loans Meanwhile, PNB on Tuesday is understood to have told the police on Tuesday that it has uncovered additional exposure of about Rs 942 crore to the Gitanjali Group, which could be in jeopardy. (Reuters)

A clutch of public sector lenders may provide short-term loans to Punjab National Bank(PNB) with which PNB will repay banks the money they lent to the Nirav Modi and Gitanjali Gems groups against letters of undertaking (LoUs) issued by PNB. The move will help them clean up their balance sheets before the year comes to a close, else the exposure to the Modi group and Gitanjali Gems, promoted by Modi’s uncle Mehul Choksi, will need to be classified as non-performing assets. A discussion on this is believed to have taken place recently at the Indian Banks’ Association (IBA) but no final decision has been taken. Meanwhile, PNB on Tuesday is understood to have told the police on Tuesday that it has uncovered additional exposure of about Rs 942 crore to the Gitanjali Group, which could be in jeopardy. PNB’s total LoU exposure to the Nirav Modi and Gitanjali Gems groups is approximately Rs 14,000 crore.

A senior banker explained that unless PNB honoured its commitments to them, the exposure would be classified as stressed assets requiring additional provisioning. “However, if we give PNB a loan, it would be classified as a loan and we would earn interest on it,” he added. Banks are hoping for a decision soon and the IBA has already written to the department of financial services and Reserve Bank of India (RBI) seeking speedy resolution. Media reports on Tuesday indicated the state-run bank has agreed to repay lenders with some riders, citing two senior officials with knowledge of the development. According to the report, PNB would issue a letter stating that if the investigation finds collusion by other banks, then they would be liable to refund the money to PNB. Banks that have an exposure to the fraud at PNB include UCO Bank, Allahabad Bank and Union Bank of India.

The RBI had said in a 2013 master circular on guarantees that there have been many irregularities in the conduct of letter of credit (LC) business. The “LC transactions not being recorded in the books of the branch by officials issuing them, the amount of LCs being much in excess of the powers vested in the officials, fraudulent issue of LCs involving a conspiracy/collusion between the beneficiary and the constituent”, it had noted.


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