Punjab National Bank (PNB), the country’s second largest public sector bank, has reported a borrowal fraud of ₹2,060 crore in the non performing asset (NPA) account of IL&FS Tamil Nadu Power Company Ltd (IL&FSTNPL).
“A fraud of ₹2,060.14 crore is being reported by the bank to the Reserve Bank of India (RBI) in the accounts of the company”, PNB said in a regulatory filing to stock exchanges. The move comes after the bank examined the forensic audit report submitted by Grant Thornton India.
Out of the total exposure, PNB has already made a provision of ₹824 crore as per RBI’s prudential norms. PNB is the fourth bank to have taken fraud declaration action on this account. The others are State Bank of India, Bank of India and Punjab & Sind Bank, sources said. Punjab & Sind Bank had declared the same account with outstanding dues of ₹148 crore as fraud.
As many as 12 banks and financial institutions have exposure to IL&FS Tamil Nadu Power Company.
IL&FSTNPL was a special purpose vehicle set up by IL&FS Energy Development Company, which in turn, is a subsidiary of the Infrastructure Leasing & Financial Services Ltd (IL&FS). The SPV was set up for implementation of thermal power projects at Cuddalore in Tamil Nadu. IL&FSTNPL had set up a 1,200 MW integrated imported coal-based subcritical thermal power plant there.
Provisions to be made
Banking industry sources said a bank is required to provide (make an accounting provision) equivalent to 100 per cent of the exposure to a fraud account. In this case, PNB would now be required to make provision of the remaining ₹1,240 crore in the coming days. For large accounts, RBI generally allows banks to spread the provisioning towards several quarters, they said. Indications are that PNB may do this over multiple quarters.
RBI norms require that in addition to reporting cases of fraud to the regulator, banks will also be required to submit a flash report for frauds involving amount of ₹5 crore or more within a week of such frauds coming to the notice of the bank’s head office.