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Fitch places PNB's viability on 'Rating Watch Negative'

New Delhi [India], Feb 20 (ANI): Amid the ongoing million dollar fraud, credit rating body Fitch has placed Punjab National Bank's (PNB) viability rating (VR) in the negative watch category.

As per an official release, PNB's viability rating of 'bb' was placed in the Rating Watch Negative (RWN), following the fraud reported recently, and would be resolved once more clarity was received regarding the bank's financial position.

"Fitch would resolve the rating watch once more clarity emerges on the extent of control failures and the impact on PNB's financial position," the statement read.

Additionally, the agency said it would monitor PNB's full liability, potential recoveries and the extent of additional fresh capital from both internal and external sources to determine if the bank's financial position is no longer consistent with the current VR.

However, the credit rating body clarified that the rating would not impact PNB's Support Rating Floor (BBB-) due to the bank's high systemic importance as the second-largest state-owned bank.

"We believe that the state's propensity to provide extraordinary support to PNB remains high, subject to the sovereign's ability, which is captured in India's sovereign rating of 'BBB-'," Fitch said.

The RWN, the company said, reflected the possibility of a downgrade of PNB's viability rating following the detection of a large fraud in one of the bank's branches amounting to USD 1.8 billion. While the exact financial impact from this event is still being ascertained, it has raised questions on both internal and external risk controls as well as the quality of management supervision, Fitch said.

PNB's asset quality and capital parameters continue to be weak but have shown some stability since Fitch's rating action in June 2017. For the nine months of the financial year to December 2018, PNB's non-performing loan (NPL) ratio eased to 12.1 percent from 12.5 percent earlier, while its CET1 ratio improved to 8.05 from 7.9 percent.

Meanwhile, profitability continued to be weak, but the bank raised Rs. 50 billion in fresh equity from the capital markets in the third quarter of FY18, and is likely to get an additional Rs. 54 billion from the government by end-March 2018 under the government's recapitalisation agenda.

However, Fitch noted that the scam caused a setback for the bank in its reputation and affected the capital market as well.

It further clarified that all other ratings of PNB remained unaffected presently.

On February 14, PNB detected a scam in which top jewellery designer Nirav Modi had acquired fraudulent letters of undertaking from one of its branches for overseas credit from other Indian lenders.

Following this, the state-owned lender lodged two financial fraud complaints of Rs. 11400 crore and Rs 280 crore against the billionaire businessman, his family members and his uncle, Mehul Choksi, who owns Gitanjali Gems.

Meanwhile, the Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) are probing the matter and conducting raids at various locations linked with Nirav Modi and Gitanjali Gems. (ANI)


This story has not been edited. It has been published as provided by ANI

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