Fraud-hit PNB needs $1.91b in capital infusion to meet regulatory requirements

The massive capital shortage is expected to cripple loan portfolio up to 2019.

Embattled state lender Punjab National Bank needs around $1.76b to $1.91b (INR120-130b) in external capital just to meet minimum 8% Basel III CET1 ratio by March 2019, according to a report from Moody’s Investors Service.

Credit rating agency Moody’s has downgraded the bank’s local and foreign currency deposits after a massive $2b fraud, dubbed as the largest in the country's history, was discovered last February.

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“The bank's weak earnings profile — as seen by its large stock of nonperforming loans (NPLs) and the associated credit costs — will limit its ability to absorb the impact of the fraudulent transactions over the next 12-18 months,” Moody’s added.

The fraudulent transactions represented 320 basis points of the bank's risk-weighted assets as of end March. After providing for 50% of the fraudulent exposure, the bank reported a common equity tier 1 (CET1) ratio of 5.95% compared to 8.05% in Q4.

PNB’s loan portfolio is also expected to bear the brunt of the capital shortage, the credit rating agency added.

However, sustained capital support from the Indian government is helping the embattled lender recover from its losses as it tries to divest non-core assets including its real estate holdings and stake in PNB Housing Finance Limited.