Banks, which have an exposure in the Rs 11,400-crore fraud at Punjab National Bank, are insisting that the latter should pay up as the letters of undertaking (LoUs) were issued by PNB to Nirav Modi and Mehul Choksi companies. The Indian Banks Association (IBA), which met here Saturday, discussed the PNB issue and the possibility of recovery of funds lent to the jewellery group.
“The discussion centred around how to recover the money (from those involved in the fraud),” said a banker. While PNB was reluctant to pay up the banks, other banks with exposure in the fraud are expecting the RBI and the finance ministry to intervene in the matter.
Among those present were Allahabad Bank MD and CEO and also IBA chairperson Usha Ananthasubramanian, Bank of India MD and CEO Dinabandhu Mohapatra, ICICI Bank CFO N S Kannan and IBA deputy chief executive B Rajkumar.
The RBI has denied reports that it has directed PNB to meet its commitments under the Letter of Undertaking (LOU) to other banks. The RBI had said it has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action. Banks have started disclosing their exposure in the PNB fraud. SBI has an exposure of Rs 1,360 crore, Union Bank Rs 1,915 crore and Allahabad Bank Rs 2,340 crore.
PNB had said the bank liability is contingent only. “The liability shall be decided based on the law of land,” it said. A contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event. “If PNB doesn’t pay up other banks, there could be double provisioning. PNB and other banks who lost money would end up making provisions. This will put further pressure on the banking system which is already under pressure due to soaring non-performing assets,” officials said.