Unusual Use Of Staff Pension Fund To Hide Losses

PNB’s performance is not sustainable with the current pace of bad loan addition and higher provisions. Bad loan has been increasing year after year at high speed. 

The bank grew advances 2.1% from a year ago while deposits grew 12.4%. Net interest margin, which is the difference between interest earned on advances and interest paid on deposits, fell to 2.69% for the three months to March from 2.76% a year earlier. Gross NPA grew to more than 12%.

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Bank resorted to write back of Rs2023 crore from employees pension fund to hide losses and booked profit of Rs250 crore in the FY ended March 2017. Such type of write back from staff pension fund has got no justification. 

This news is in circulation in the market since 17th of May 2017 and PNB management has not rebutted /denied /clarified  it till date and hence the apprehension of unusual use of pension fund by PNB to hide losses may be true. 

As such either PNB should say that the apprehension expressed on social site is baseless and truth is different or the news circulating in the market may be considered as true.

It is worthwhile to mention here that every bank is duty bound to contribute in pension fund to the extent of at least 20% of total pay of employee towards future liability of payment of pension and gratuity to retired employees.

As such any bank has no right to misuse pension fund which is meant for retired employees. Bank employees remember how they had to sacrifice huge amount from their arrears after IXth bipartite settlement on lame excuse given by IBA that bank has shortage of pension fund.

This is the status of a big bank like Punjab National Bank PNB which reportedly committed unusual act ( as good as improper and fraudulent) of withdrawal of more than Rs.2000 crore from pension fund to hide losses and to shine the image of CEO of the bank. This is the bank  which provided lesser amount towards provision for NPA,  which has huge hidden NPA, which has been incurring losses in huge volume, a bank in which NPA has been rising fastly, where credit growth has remained dismal an so on.   It is ridiculous that despite such irregularities , this bank is considered a strong bank. 

Many other banks like Dena Bank, Vijaya Bank, Indian Bak , IOB are considered weak in comparison to PNB. Position of  so called strong banks like SBI , Bank of Baroda , Canara Bank may also be more pathetic if their financial are also audited by a honest team of inspectors. I cannot comment on already declared weak banks when position of so called strong bank is so much pathetic.

However I raise some questions before you and expect answers on them to create awareness among bankers.

Can anyone say why and how this bank PNB is called strong?

Can anyone justify the action of auditors who certified balance sheet despite unusual (apparently illegal ) write back from provisions? 
If not, then why CA team should not be punished?

Can anyone justify revaluation of pension and gratuity fund undertaken by PNB management to book profit and to hide losses?
If not why top officials of this bank should not be punished severely?

Can anyone imagine that a big bank like PNB incurred no expenses on employee cost, rather booked credit of more than Rs500 crore for the last quarter ended  31st March 2017? ( details given below)

Can anyone say why trade union leaders remained silent on such a big crime with employees fund even after lapse of about 3 months from balance sheet date?

Can anyone guarantee that other public sector banks in particular and banks in general have not resorted to similar type of illegal way to book profit and to hide losses? 
If no, then bank chiefs are obviously manipulating figures as per their whims with indirect concurrence from RBI, Ministry of Finance and other regulators.

Can anyone give reason why such type of unusual, improper , abnormal and as good as fraudulent act committed second time ? In the past , many banks had committed the same crime and later RBI under pressure from the then MOF allowed banks to ammortize the left out provisions.

Can anyone say why government of India and RBI are silent on such scandalous act? 

Can anyone resist and stop  IBA when they will deny updation on pension amount to bank staff making excuse of paucity of pension fund?

When bank employees demand higher wages and higher pension , IBA talk of profitability . 
Can anyone teach lesson to IBA and ask why misappropriation of staff related pension fund takes place and what action they have taken so far against erring officials and auditors ?

I submit below the some data collected from annual balance sheet of the bank:

Particulars    Qtr March 17    Qtr Dec 16      Qtr Sept 16    Qtr June 16  (Rs. in Crs)

Employee Cost   Cr548.36     Dr.2102.13      Dr.1967.16    Dr 1899.79  

Balance Sheet published by PNB as at 31.03 2017 reflects following information:-

Here it is important to point out that amount spent on employees ( Employee Cost ) continued to rise quarter after quarter from March 2016 quarter when the amount spent by the bank was  Rs.1007.57  to Rs.2102.13 crore in quarter ended December 2016     .  But in the quarter ended March 17 , the employee cost came in credit instead of usual debit nature of expenditure.

It leads a layman to think that bank credited some unusual amount in this head of Expenditure which turned Dr2500 crore to Credit 2000 crore approx. This unusual credit may come as alleged, by debiting  pension fund only.

To make it more clear I would like to mention here that total employee cost incurred by PNB during FY 15-16    was Rs.6425.95 crore. Every year total burden due to employee cost goes up by at least 10% to 20% due to DA rise. But in case of  Punjab National Bank, total employee cost for the FY 2016-17 came down to Rs.5420.72 crore that is down by almost Rs.1000 crore. . 

It proves that the bank credited an amount of Rs.2000 crore to this head which resulted in reduction in annual employee cost instead of jump by 10 to 20% compared to that of annual expenditure for the year ended March 16.

As such alleged write back of Rs.2023 crore by PNB appears to be correct.

It is reported in the news that the bank carried out revaluation of liability towards payment of pension and gratuity and reversed excess provision so far made . 

I have heard bank resorting to revaluation of assets of borrowers , that of landed property  in the name of bank and that of provision towards Non Performing assets due to recovery and rise in asset value in negligibly few cases. But I have never heard in my life about any bank carrying out revaluation of pension fund or provident fund. 

It is because , pension fund is created not at the whims and fancies of CEO of any Bank . It is created by a fixed contribution of 10% of pay made by every staff and equal contribution made by the bank every month .

In case of staff opting for Provident Fund, total of these two contributions (10% of pay by staff and 10% by bank ) is credited every mont in account of Trustee of Provident Fund and in case of pension optee staff , the same amount is credited to Pension fund.

In addition to making provision towards payment of terminal benefits like pension and provident fund, every bank is liable to make provision also towards payment of gratuity to retiring staff  as also that for leave encashment . As such there is no scope left for any bank in writing back of amount from pension fund once credited as per certain fixed rule.

I therefore feel that CEO and other officials of  bank  are guilty of misappropriation of pension fund ownership of which lies on pensioners. Not only bank officials , even Chartered Accountants are equally guilty who certified the annual report knowing very well the improper entry passed by the bank . Intention of bankers as well as that team of CAs is doubtful  and need proper inquiry by regulators and CVC. 

As a matter of fact, similar incident took place a decade ago when concerned CEOs of banks were not penalised but awarded. Those banks were permitted by RBI to ammortise left out provisions in a maximum period of five years . As such recurrence of same mistake proves that it is the well established culture of top officials .. They resort to window dressing not only in deposits , advances and cash recoveries but also they play foul game in making provisions towards NPA and terminal benefits as also in identification of NPA.

It is therefore need of the hour to not only stop such unhealthy practices but also to penalise erring officials.  Chief of Bank retire after committing such mischievous act and his successor has to bear the brunt. And then this chain of committing mistake after mistake goes on increasing unabated. And when top officials resort to unethical ways for getting elevation in career , same ways are adopted down the line by every rank and file to improve their chances of promotion in their career.

As a result of this evil culture prevailing in bank, it is taxpayer's money which is every year infused by government of India to protect these banks from facing liquidation , it is investors of banks who are deprived of dividend and appreciation in market value of shares , it is depositors of banks who are paid less rate of interest on deposits and finally it is bank staff  themselves who get lesser hike in wages at the time of bipartite settlement.

If you are interested to know what had happened a decade ago please read following blog link of which is given below.

Specific case of violation and fraud in Bank Employees Pension Fund - Issue No 1

1. None of the Public Sector Bank has deposited the incremental cost of the Pension as agreed above since 01.11.1997 Listed at point No c, d and e above. They CMDs inflated the profits to loot the incentive of Rs 8-10 lacs as per SOI Targets fixed by MOF.
2. Bank of Baroda instead of deposited the 10% of basic pay p.m. during 2009-10, in fact the CMD/CFO/GM HRM of the Bank dipped in the pension fund and withdrawn Rs 46.99 cr (a clear case of violation of pension regulations) to inflate the Bank profit as per the table given below:

Table based on last -5- years Annual Report of the Bank showing fraud in pension fund

Link to Blog dated 22 sept 2013

Also read petition filed by Sri Jaiprakash Nagarrajarao

Link to Change org containing petition of Sri Jaiprakash 

Click Here to know how in past banks did not make provision in pension fund to inflate profit