Nirav Modi, Mehul Choksi fraud dents PNB Q4FY18 earnings, net loss soars to Rs 13,415 crore

Two jewellers, Nirav Modi and Mehul Choksi linked fraud of over Rs 14,000 crore has reflected in the earnings of Punjab National Bank in a very disappointing manner. This third largest PSB in terms of market cap posted a net loss of Rs 13,416.91 crore during fourth quarter ended March 2018, compared to net profit of Rs 261.90 crore in corresponding period of previous year and net profit Rs 230.11 crore in preceding quarter. 

PNB’s net interest income (NII) plunged by 16.83% to Rs 3,063.39 crore in Q4FY18 compared to Rs 3,683.52 crore in Q4FY17. Also the performance was down by 23.20% from Rs 3,988.70 crore in Q3FY18. 

What was breathtaking to watch in PNB results was their higher than expected provisions and gross NPAs. These together hampered the overall earnings. 

Provisions came in at Rs 20,353.10 crore in Q4FY18 increasing by 253.75% versus Rs 5,753.51 crore in Q4FY17, and also up by a huge 355.67% from Rs 4,466.68 crore in Q4FY18. 
The Provisioning Coverage Ratio as at 31st March 2018 works out to 58.42%. 

Gross NPAs were at Rs 86,620.05 crore up by 56.43% from Rs 55,370.45 crore in Q4FY17 and higher by 50.59% as against Rs 57,519.41 crore in Q3FY18. 

In percentage terms, gross NPAs stood at 18.38% in Q4FY18 versus 12.53% in Q4FY17 and 12.11% in Q3FY18. 

PNB informed in its financial audit report that, after including outstanding amounts under other credit facilities to the above entities, the amount involved now works out to Rs 14356.84 crore. 

RBI in a letter on March 28, 2018,  has permitted the Bank to make provisions against this fraud about 25% without debiting "Other Reserves" and provide remaining amount during first three quarters of the ensuing financial year. 

Therefore, PNB stated that  Bank has made higher than required provisions @ 50% amounting to Rs 7178.42 crore and remaining provision of Rs 7178.42 crore will be made during the first three quarters of the ensuing financial year in terms of RBI's dispensation.

A fraud was detected at  Brady House, Mumbai Branch of the bank involving Nirav Modi and Mehul Choksi for their companies where through apparent connivance between these entities and few employees of the Bank, some Letters of Undertaking (LOUs)/Foreign Letter of Credit (FLCs) were issued fraudulently and in unauthorised manner to certain overseas branches of Indian banks through the misuse of SWIFT system of the Bank which was then not integrated with CBS. 

The fraud is under investigation by various central investigating agencies

Following the above fraud, PNB's financial performance ends with a loss of Rs 12,282.82 crore in FY18 compared to net profit of Rs 1,324.80 crore in FY17.

On BSE, the share price of PNB tumbled by Rs 3.40 or 3.80% to Rs 86 per piece.