PNB urged RBI to allow it to spread the losses over four quarters as providing for the entire amount at one go could wipe out 25% of bank’s net worth.
Although there is a direction of the RBI on provisioning to be made in case of loan fraud, the bank is taking pre-emptive action to deal with extraordinary situation created by unearthing of this mega fraud.
There is no precedence of fraudulent Letter of Undertaking issued earlier, so the RBI is likely to allow PNB to make provision against the fraud not exceeding over four quarters.
“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.
According to Colin Shah, vice chairman, GJEPC, the deadline for responding to the showcause notice ends this week. “If the explanation doesn’t come (by Friday), it will get escalated to the Council’s disciplinary committee.
Thereafter, it will be referred to the Board and the Ministry of Commerce and Industry followed by initiating the suspension process of their membership,” Shah said, adding that the Council will follow the legalities and procedures laid down to deal with such instances.