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India’s second-largest public sector lender Punjab National Bank (PNB) declared its Rs 3,688.58 crore exposure to mortgage financier Dewan Housing Finance Ltd (DHFL) as a fraud.
‘A fraud of Rs 3,688.58 crore is being reported by the bank to RBI (Reserve Bank of India) in the accounts of the company (DHFL). Bank has already made provisions amounting to Rs 1,246.58 crore, as per prescribed prudential norms,’ it said in a stock exchange filing.
Once an account is declared a fraud, banks need to set aside 100 per cent of the outstanding loans as provisions, either in one go or over four quarters, according to RBI rules. To be sure, PNB is not the first bank to report a DHFL account as fraud, with the most recent being private sector lender Karnataka Bank in June. Earlier this year, the National Financial Reporting Authority (NFRA) had started an audit of DHFL accounts and has reached out to its administrator for documents pertaining to the company’s statutory audit for 2017-18.
The Securities and Exchange Board of India (Sebi) has also sought an update on the lender’s transaction audit. A transaction audit of DHFL by Grant Thornton had indicated instances of ‘avoidance transactions’ by the company.
On 12 February, the report was presented to the administrator, who believes certain transactions were related to undervalued transactions, extortionate (on unfair terms) transactions and fraudulent trading, under the Insolvency and Bankruptcy Code (IBC).
