Punjab National Bank has asked for some time from Reserve Bank of India (RBI) so that it can provide reasons for the losses in the nearly Rs 13,000-crore Nirav Modi-Gitanjali Gems scam over four quarters instead of at one go as it expects to recover 40% of the loaned funds.
Bearing the full provisioning loss of over Rs 12,900 crore in the March-end balance sheet could wipe out more than a quarter of PNB’s net worth of Rs.48,000 crore. Such erosion in the book value would also restrict the bank’s ability to raise money in the market.
“We believe that RBI will agree to our request as there is a provision in its rule that losses can be spread over four quarters. Also, the entire amount is still not NPA as it will happen during the course of the full year. So what we are saying that we will provide towards LoU that remains unpaid till March 31 and then subsequently in the coming quarters”, said the bank in a press conference held by PNB on February 15.
“However to smoothen the effect of such provisioning on quarterly profit and loss, banks have the option to make the provisions over a period, not exceeding four quarters, commencing from the quarter in which the fraud has been detected,” the rule says. One person close to the situation said that the central bank may give such relaxation to PNB.