Nirav Modi Scam: PNB Yet To Decide On How To Account For Losses

The Punjab National Bank (PNB) is expected to take a call, before April-end, on how to account for the losses (in financial statements of 2017-18) it may incur from the diamantaire Nirav Modi-perpetrated Letter of Undertaking (LoU) scam.

While PNB on Wednesday took a historic decision of honouring payments on all LoUs issued by the bank and maturing before March 31, it has not so far decided as to whether the entire payment will be expensed at one go or provided for over several instalments, sources said.

On Wednesday, the lender put the estimated liability from the settlement of 352 LoUs with seven banks in relation to the recent fraud at ₹6,500 crore.

“We will come to this decision (provisioning) when we finalise the balance sheet for 2017-18. This will happen before end-April,” said sources in the bank.

Both analysts and investors are keenly watching as to how the bank will account for the losses due to the scam. This will have an impact on the disclosed bottomline and other financial parameters.

100% provisioning

The RBI norms requires 100 per cent provisioning of losses once a fraud comes to light.

In the PNB case, it does not matter whether the LoU fraud is finally billed as an “operational fraud” or an advance-related fraud, industry observers said, adding that 100 per cent provisioning is a must in the interest of prudence and good-governance practices.

However, with PNB already requesting the RBI to allow it to spread the provisioning over, say, four quarterly instalments, all eyes are on the central bank to see which way it would move on this front.

PNB is yet to formally hear from the RBI on this request, it is learnt.