Punjab National Bank could be labelled defaulter if it doesn't pay Union Bank Rs 1,000 crore by 31 March

The Punjab National Bank (PNB) could be labelled a defaulter if it does not pay the Union Bank of India about Rs 1,000 crore by 31 March, according to a media report.

PNB has to settle claims against  letters of undertakings (LoUs) issued by it earlier.

If PNB fails to do so, the Indian banking sector, already troubled by frauds, will witness an unprecedented event, where, for the first time, a bank will be "technically described as defaulter”, reported The Economic Times.

Auditors could insist the LoUs, maturing before 31 March, be described as NPAs for the current financial year, the newspaper added.  

Representational image. Reuters

“For us, it’s a genuine claim on PNB backed by documents. It is not a fraud in our books. We will take the auditor’s view. However, we don’t want to list PNB as a defaulter. We are expecting some intervention from either the government or RBI so that there is a resolution by March 31,” Rajkiran Rai, MD of Union Bank was quoted as saying in the report.

In February, state-owned Union Bank said it had an exposure of $ 300 million (around Rs 1,915 crore) to the Rs 11,400-crore PNB fraud case, but stressed that its money was safe and that it would recover it,  the PTI had reported. "The outstanding exposure related to the incident is approximately $ 300 Million and the Bank is fully secured by LoU /LC /Other documents and fully confident to receive the payment," said the Union Bank statement.

The State Bank of India (SBI) too has an exposure of at least $200 million to the PNB fraud involving Nirav Modi-helmed companies. SBI, in February, said that it had an exposure of $212 million to the PNB with respect to the fraudulent transactions, but did not have any direct exposure to Modi. “We don’t have any direct exposure to Nirav Modi, but we do have some exposure to PNB,” SBI chairman Rajnish Kumar was quoted as saying by the PTI.

Last week, Union Bank's shares fell to an over 11-year low after the Central Bureau of Investigation (CBI) registered a case against a private company for allegedly cheating eight banks, including the Union Bank, of 13.94 billion rupees. The CBI registered a case against Hyderabad-based Totem Infrastructure and its directors post a Union Bank complaint, which said the lender had been cheated of about 3.14 billion rupees.

With inputs from agencies