Moody's Downgrades PNB Ratings On Reporting Biggest Quarterly Loss

Moody's Investor Services, the US-based rating agency has downgraded PNB's (Punjab National Bank) ratings on account of its massive loss of Rs 13,417 crore in the fourth quarter of 2017-18 from the Nirav Modi-Mehul Choksi fraud.

The statement said, "Moody's Investors Service has downgraded the local and foreign currency deposit rating of Punjab National Bank (PNB) to Ba1/NP from Baa3/P-3. At the same time, Moody's has downgraded the bank's baseline credit assessment (BCA) and Adjusted BCA to 'b1' from 'ba3.'

Baa3/P-3 (Prime-3) indicates moderate risk with acceptable ability to repay short-term debt. Its downgrade to Ba1/NP (not prime) will mean it is now considered to have speculative elements with significant credit risk.
Ba3 means the same as Ba1, but comparatively higher credit risk, while B1 indicates speculative with higher risk.

In a note, the rating agency explained that the downgrade was a result of the discovery of fraudulent transactions especially in its capital position, indicating weaker internal controls within the bank.

PNB had reported its biggest ever quarterly loss in Indian banking history at Rs 13,417 crore for the January-March quarter. It had informed investors of the major fraud involving billionaire diamond jewellers Nirav Modi and Mehul Choksi (Gitanjali Gems). On subsequent investigation, it was found that its total exposure to the fraud amounted to Rs 14,400 crore.

Moody's has also estimated that the bank will require Rs 12,000 to 13,000 crore in capital infusion for it to strengthen capital ratios. It also said that the government will have to step in because of "the systemic importance of PNB" as the second largest public sector bank in India by total deposits.