Sunday, December 22

Moody Downgrades PNB Ratings over Impacts of Nirav Modi Fraud

International Rating Agency Moody’s, Investor Service has downgraded state-owned Punjab National Bank’s rating citing the impacts of recent fraud on bank’s capital and weak internal records.

While PNB’s rating has been modified to Ba1/NP from Baa3/P-3, its outlook has remained stable. Its baseline credit assessment (BCA) to has been downgraded by the credit agency.

The Moody’s Report that released on Monday said,

The downgrade of the bank’s BCA and ratings reflects the negative impact of the discovery of a number of fraudulent transactions on the bank’s standalone profile, particularly its capital position.

 

Moody’s report has forecasted that the state-run bank will need an external capital of about Rs12,000-13,000 crore in FY19 to meet the minimum Basel III CET1 ratio of 8% by March 2019, including a capital conservation buffer.

The estimates have taken various factors into account such as :

  • Ageing basis provisions for the non-performing loans (NPLs)
  • Deferred provisions for the PNB Fraud
  • Investment losses
  • Employee Benefit Expenses

 

Interestingly, it was just last week when PNB reported a loss of Rs 13,416.91 crore for the January-March period one the biggest loss to have ever reported by a domestic lender till date. The Net NPA’s for the bank have also soared to 11.24 percent against 7.81 percent year ago.
The rating downgrade is indicating bank’s weak internal controls given that the fraudulent transactions were undetected for a number of years.

It was after the heated Nirav Modi Scam, Moody had initiated a review of the bank’s ratings on 20 February 2018, which stands completed now.

The rating agency has further said that it will downgrade PNB’s BCA and ratings if the bank’s capitalization worsens beyond what is expected in this rating action. Any indication that government support to the bank has diminished will also lead to a ratings downgrade, it added.