PNB loans under RBI scanner

Central bank asks for details of all loans sanctioned between April 1, '05, and March 31, '07.

The Reserve Bank of India (RBI) has asked Punjab National Bank (PNB), the country's second largest lender, to furnish the details of loan accounts sanctioned between April 1, 2005, and March 31, 2007.

In a letter dated September 25, 2007, and addressed to the bank's credit administration department, the RBI has asked PNB to submit "at the earliest" names of the parties to whom loans and advances were sanctioned in a consortium with Oriental Bank of Commerce (OBC) and Indian Overseas Bank (IOB) as well as the loan accounts that were taken over from both OBC and IOB in the same period.

RBI has also asked for data about the advances sanctioned by the bank to the real estate sector.

S C Gupta, who was the chairman of PNB from May 2005 to May 2007, was also the chairman of IOB and general manager (credit) of OBC before taking over as the chief of PNB.

When contacted, K C Chakrabarty, the current PNB chairman, confirmed that the RBI had sent such a letter to specific department heads. He also said the Central Vigilance Commission (CVC) was conducting inquiries.

When asked why the RBI was requesting information regarding loans sanctioned only in consortium with IOB and OBC, Chakrabarty said, "The RBI conducts such inquiries after receiving complaints."

The asset quality of PNB has deteriorated, with 3.81 per cent of its advances becoming bad loans or NPAs in the quarter ended June 30, 2007.

For the quarter, the bank had reported fresh NPAs of Rs 600 crore. This is over and above the Rs 2,000-crore slippage the bank had in the last financial year. PNB had made Rs 137.87 crore provisions for NPAs in the first quarter.

The RBI officials said PNB had come under the scanner after it sanctioned a loan of Rs 350 crore to Vishal Overseas and Exports in 2006, which is a sharp jump from a mere Rs 27 crore in the previous year.

This is despite the fact that the company's profits had declined by 99.29 per cent (in the quarter ended December 2006) to Rs 10.07 lakh from Rs 15.91 crore during the corresponding quarter in the previous year.

Net sales had also dipped by 83 per cent to Rs 143.8 crore in the same period. The loan was granted by a consortium of banks led by PNB.

Two of PNB's assistant general managers were suspended at that time following the RBI's inquiries into the matter.

PNB has, in the past few months, sold over 4 per cent of its holding in Vishal Overseas, according to the data available on the Bombay Stock Exchange website.

Chakrabarty said, "It is true that Vishal Overseas has become an NPA, but the account has been with us for several years. When contacted, S C Gupta said some false complaints were filed with the RBI to malign his image.

"The RBI conducts inquiries when there are complaints. Some people who want to malign my image are complaining against me. The two assistant general managers were suspended by PNB's internal vigilance wing and one of them has already been re-instated and is working with one of the branches in Mumbai."

On the loan exposure to Vishal Overseas, which was sanctioned when he was the chairman, Gupta said it was sanctioned by a consortium of 22 banks.

"Besides, the company was doing extremely well when we sanctioned the loan," he added.

Deepak Mehta, joint director of Vishal Overseas, said, "The loan was taken for exporting diamonds, but the promoters had financed a major portion."