India's Punjab National Bank reported a second straight quarterly loss on Tuesday as it earmarked more funds to cover a massive fraud, but expects faster bad loan recovery to help it return to a profit for the full year. PNB, the fourth-biggest bank by assets among all of India's lenders, in February said it had been defrauded by two jewellery groups which raised more than $2 billion in credit overseas using fake guarantees provided by the bank's staff in Mumbai.
The bank is taking every possible measure "so that we can bounce back in the shortest possible time," Chief Executive Sunil Mehta told a news conference, outlining steps for boosting recovery of bad loans, conservation of capital and further capital increase via the sale of non-core assets and stakes in units. The net loss of 9.40 billion rupees ($136.80 million) for the first fiscal quarter to June 30 was smaller than the 134.17 billion rupee loss reported in the previous quarter - the steepest-ever loss for an Indian bank.
The latest loss compared with a profit of 3.43 billion rupees a year earlier, and stands against analysts' estimates of a loss of 24.18 billion rupees, according to Thomson Reuters I/B/E/S. For the six months to September 30, PNB aims to recover 200 billion rupees worth of bad loans, Mehta said, adding that a major portion of the planned recovery in the second quarter will come from expected resolution of cases in bankruptcy court.
The bank recovered 84.45 billion rupees in bad loans in the first quarter, after recovering 56.17 billion rupees over the last year. As bad loan additions slow and the bank completes provisioning for the fraud case, profits will improve, Mehta added. "This financial year we are planning to go back to black."
Shares of PNB fell as much as 8.4 percent in afternoon trade on Tuesday after the results, and closed 8 percent lower. PNB's total provisions in the June quarter were 57.58 billion rupees, including 18.63 billion rupees on account of the fraud, the bank said in a statement.
Of the total 143.57 billion rupees PNB owes banks for the illegal guarantees, it had set aside 71.78 billion rupees in the March quarter. The central bank has allowed PNB to spread the fraud-related provisions over four quarters to December 2018. Indian banks have been hit by a surge in bad loans in recent years and have seen provisions accelerate as part of a clean-up exercise that includes sending defaulting borrowers into a nascent bankruptcy court framework.
State-run banks accounted for more than 86 percent of the record 10.36 trillion rupees in non-performing loans held by India's banks at the end of March. PNB's gross bad loans as a percentage of total loans stood at 18.26 percent at the end of June, compared with 18.38 percent at the end of March, and 13.66 percent a year earlier.
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