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  Business   Companies  04 Jun 2018  FinMin rejects PNB’s Rs 7,000 cr extra capital infusion demand

FinMin rejects PNB’s Rs 7,000 cr extra capital infusion demand

FINANCIAL CHRONICLE
Published : Jun 4, 2018, 9:18 am IST
Updated : Jun 4, 2018, 9:18 am IST

PNB had received Rs 5,473 crore recap funds last year during the first round of infusion.

The bank had sought the additional funds to tide over its shaky financial position.
 The bank had sought the additional funds to tide over its shaky financial position.

New Delhi: The finance ministry has turned down Punjab National Bank’s (PNB) demand for over Rs 7,000 crore extra capital infusion over and above the second tranche of recapitalisation.

The bank had sought the additional funds to tide over its shaky financial position. The lender’s financials have been ruined by the over Rs 13,000 crore fraud, allegedly perpetrated by diamond merchants Nirav Modi and Mehul Choksi.

 

Sources said the department of financial services turned down PNB’s request and asked the bank to focus on recovery, selling non-core assets and unused lands, getting out of joint ventures and improving on CASA.

The PNB board is expected to take a call on selling a part of its stake in life insurance joint venture PNB Metlife at its meeting in the last week of June, sources said. PNB has 30 per cent stake in the joint venture.

The lender had made a presentation before the ministry and the Reserve Bank of India (RBI). The bank management has told the government that it needs special assistance from the parent ministry to sustain itself after absorbing the impact of the fraud of this proportion. But the ministry is not willing to provide for more than its proportionate share expected in the second round of recapitalisation, sources said. PNB had received Rs 5,473 crore recap funds last year during the first round of infusion.

 

CASA ratio of a bank is the ratio of deposits in current and saving accounts to total deposits. A higher CASA ratio indicates a lower cost of funds, because banks do not usually give any interest on current account deposits and the interest on saving accounts is usually very low, 3-4 per cent.

Official sources also said the government is mulling changing the management of PNB after CBI filed the chargesheets.

“There is some sort of uncertainty at the PNB. Nobody knows if the current management will stay on and for how long and many decisions lay unattended to because of that. After the government very unceremoniously divested the Allahabad Bank CMD, who was the PNB head at the time of the scam, and with the fate of its two EDs hanging in balances after CBI naming them, the leadership issue has come up. Change of top management can not be ruled out,” said a source.

 

With no extra capital coming and with no hopes of top and bottom lines improving in the near future, the second-largest government-owned lender would have to rely on recoveries of dues under the Insolvency and Bankruptcy Code and proceeds from sale of its non-core assets.

PNB is expected to recover around Rs 900 crore dues from Bhushan Power and Steel. The resolution proposal is being heard by the National Company Law Tribunal (NCLT). Bhushan Power and Steel owes more than Rs 48,500 crore to a PNB-led consortium of lenders.

The public sector bank is mulling the sale or leasing real estate properties across northern India, including New Delhi, but these plans have been going on for a long time and are yet to fructify to yield any result.

 

PNB had earlier this month reported a record net quarterly loss of Rs 13,417 crore for the March-ending quarter.

Tags: finance ministry, pnb, capital infusion, recapitalisation, rbi
Location: India, Delhi, New Delhi