PNB would settle about 352 LoUs and FLCs worth Rs 6,500 crore cross-maturing on or before March 31, 2018
After nearly two months of hectic parleys with the government, the Reserve Bank of India and banks, the Board of the fraud-hit Punjab National Bank (PNB) has decided to honour all the inter-bank Letter of Undertakings (LoUs) and Foreign Letters of Credit (FLCs).
The bank in a statement said it would settle about 352 LoUs and FLCs worth Rs 6,500 crore maturing on or before March 31, 2018.
The bank also said it would honour all subsequent LoUs and FLCs as and when they mature. Besides, the Board has approved ending all inter-bank disputes on fraudulent letters.
“From the beginning when the fraud was detected and reported to the authorities by PNB, the bank had communicated that it has a strong balance-sheet to meet any contingent liabilities upon the bank,” it said in its statement on Wednesday.
The decision taken by the Board will help settle LoUs with seven banks in connection with the LoU fraud perpetrated by the PNB employees, which amounted to Rs 13,000 crore.
Banks were uncertain as to how they would classify their exposure to the LoUs that matured by March 31, 2018 while finalising the results.
PNB had initially asked banks to sign indemnity letters saying that if the investigations reveal that the payments were not bona fide then the respective banks would repay the money. However, the other banks did not agree to a conditional settlement of the dues.
Besides if banks conditionally receive money even then they have to undertake provisions. “In that case, both the banks PNB and the bank that sanctioned the money would have had to do provisioning,” said a banker who has also issued an LoU to PNB.
Several banks, including State Bank of India (SBI), Bank of India, Union Bank of India and Allahabad Bank, had sanctioned money to the Nostro account of PNB against the LoUs and FLCs in a series of transactions to fund the business transactions of Nirav Modi and his uncle Mehul Choksi.
PNB claimed the Board's decision will "end all inter-bank disputes on fraudulent LoUs and FLCs". Besides the payment, the Board also reviewed the progress made on linking its swift platform with the core banking solution (CBS) and the first phase of the integrated system will become operational from April 3.
"The complete integration will be achieved ahead of the April 30 deadline stipulated by RBI for all banks. The successful integration will be achieved in record time because of the upgradation of the bank’s CBS to Finacle 10 across approximately 7,000 PNB branches. This was completed as of January 26 this year," the bank said.
PNB is upgrading its CBS from Finacle 7 to Finacle 10, which will give it better control over all transactions across the lender’s 7,000 branches.
“The Board and the management are taking every possible step to restore morale, motivation and pride back to all its 70,000 employees. The bank is not afraid of taking tough action where required. At the same time, the bank is committed to build a strong partnership for customer service and excellence,” the PNB Board said.
TIME TO PAY
- PNB would settle about 352 LoUs and FLCs worth Rs 6,500 crore cross-maturing on or before March 31, 2018
- It had asked banks to sign indemnity letters that they would repay the money if investigations revealed that the payments were not bona fide
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