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Wednesday, July 19, 2017

PNB Says On Alleged Withdrawal From Pension Fund

News Published on 17th of May 2017 in newspaper namely Livemint in connection with alleged withdrawal of fund from pension fund to book profit and to hide actual loss.

Key points of the news item are as follows

The bank said it revalued the provisions related to pension and gratuity funds and found that it carried an excess of Rs2,026.6 crore, which it decided to write back. Without this one-off gain, the bank would have reported a net loss of Rs1,764.7 crore.

While the bank’s write back is within the ambit of accounting standards, its external auditors have drawn attention to this note ‘without qualifying opinion”.

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.

“PNB’s performance is not sustainable with the current pace of bad loan addition and higher provisions,” 

The bank’s bad loan ratio stood at 12.5% at the end of March, compared with 13.7% three months earlier. While its provision coverage ratio, too, improved to 58.7%, the net bad loans ratio stood at 7.81% at the end of March. This could potentially trigger the Prompt Corrective Action (PCA) plan of the Reserve Bank of India. or RBI, under the new framework, where the first threshold for net bad loans has been set at 6%. The regulator has already initiated PCA in the case of IDBI Bank and Uco Bank citing poor financial performance.

http://www.livemint.com/Companies/VWMRtiBEj3m64hih4S0TyK/Punjab-National-Bank-Q4-profit-at-Rs26190-crore.html

After one month of the said news, some section of bankers came to understand that there is something fishy in balance sheet and profit and loss account published by PNB for the year ended 31.03.2017. It was alleged that management of PNB has illegally debited pension fund to hide loss and to artificially book profit . Comments and questions started pouring on social sites. Then leaders associated with trade unions decided to take up the matter with PNB to know the real truth.

Even trade union leaders wrote to PNB management in this regard .

On 3rd of July there was a news in Hindu Business line reading as under

AIBEA wants clarity on ‘transfer’ of ₹2,026 cr from PNB Pension Fund. Key points highlighted by AIBEA are as under:-

All India Bank Employees’ Association (AIBEA) has written to the Centre seeking clarifications over the reported transfer of ₹2,026 crore from Punjab National Bank (PNB) Employees Pension Fund to the bank’s profit and loss account.

Employer contribution to pension and gratuity funds representing excess of fair value of plan assets over present value obligation amounting to ₹2,026 crore has been credited to ‘Payments to and provisions for employee cost during the current quarter/year.’

Read along with information that ₹2,026 crore has been credited to employee cost due to excess value in pension fund, it means that the amount has been taken from the pension fund to the employee cost account in the P&L account.


Link to news item published in Hindu Business Line newspaper is given below.

http://www.thehindubusinessline.com/money-and-banking/aibea-wants-clarity-on-transfer-of-2026-cr-from-pnb-pension-fund/article9747213.ece

One unit of trade union of Kerala state wrote to CMD of PNB on this issue. Main part of the letter is given below

Live Mint of 30th June, 2017 brought to light information on write back of Rs.2,023 Crores from the Pension Fund to post a profit of Rs.259 Crores in the financial statements of the Bank as of 31st March, 2017. 


In terms of regulation 5 (2) of Pension Regulations, the Pension Fund has the sole purpose of payment of pension/family pension.  Regulation 11 provides for actuarial valuation of Pension Fund and additional contribution by Bank to make good any deficit. Nowhere there is provision for application of Pension Fund for any other purpose.  In short the write back of Pension Fund was misapplication of Pension Fund which is illegal and a major crime that attracts punitive action.  Pension Fund is the deferred wages of the employees and the money of the employees. The Bank was on other words robbing the people who work/worked for it.


When management of PNB received queries from trade unions, they reportedly  responded as under as reported by leaders of trade unions connected to PNB.

The bank/ Finance Division/H.O., vide its mail dated 18.07.2017, (Zerox copy annexed) has reduced in writing “that no amount was transferred from Pension Fund to the Profit and Loss Account of the Bank during the financial year 2016-17.  The bank has averred that PNB Employees Pension Fund Trust is a separate entity and bank is not authorized to transfer any amount from the Trust”. 

Leader of the trade union further adds the conclusion as under in closing the matter for ever.

“Although, we are trying to further probe few related issues, in this regard, but our concern that the Pension Fund Account has been debited by the Bank to white wash the Balance Sheet may set to rest with the referred communication of the Bank.  “

I have reproduced key points of newspaper , trade unions and that of management . It appears that the  chapter related to alleged illegal withdrawal of fund from pension fund has been closed. 

However I have some queries which still remain unanswered and I hope financial experts , Chartered Accountants, RBI officials, Officers associated with banking division or trade union leaders and individuals who are protectors of staff interest, correctness of balance sheet and image of the bank should come forward to enlighten elaborately on following points to allay all doubts and confusion arising out of aforesaid unusual entry passed by PNB .

  1. Why PNB management felt the need of revaluation of pension fund in December quarter 2017 only , not earlier. 
  2. When excess amount was credited and who are  responsible officials for such big lapse?
  3. What is about audit remarks which has been given in audit note .Statutory auditors were not satisfied with the reply given by PNB management for above unusual entry of more than Rs.2000 crore and hence they mentioned it in their note.?
  4. Why statutory auditors did not insist for reversal of unusual entry if it was beyond normal practice and why did they sign on balance sheet , why did they not take up the matter with Ministry of Finance? Did they ever find such transaction taking place in any other bank which they certified in earlier years.
  5. What is the explanation of PNB management that staff cost came in credit of Rs.500 plus crore in December 2017 quarter whereas in the previous quarter staff cost was more than Rs.2500 crores.?
  6. If justification given by PNB for above mentioned unusual credit in expenditure account by Rs.2026 crore is acceptable to trade union leaders , To Ministry of Finance and to RBI, will they allow all banks to follow the same exercise and inflate their profit. or in other words, have other banks also done the same anytime in the past?
  7. Will PNB speak about the person who committed mistake of excess credit and in which year and is there any provision for punishment for such a big mistake.?
  8. Will financial experts who are habituated to analyse balance sheets of various companies of stock market say why they still consider the Bank as strong bank and why they suggest or predict hike in stock price ?
  9. If RBI and MOF agrees to explanation given by PNB management in support of the aforesaid unusual entry , they should come out with a clear picture about all other PSU banks who have also done the same exercise to reveal how much they have added to their profit by virtue of fair valuation of pension fund. 
  10. If RBI and MOF do not concur with excuse made by PNB, and if other banks have not resorted to such unusual withdrawal from pension fund, they should say what is special with PNB which forced to carry out fair valuation exercise.
  11. And last but not the least, if pension fund is not debited by PNB as confirmed by them vide their letter dated 19.07.2017 cited above , PNB should tell which account has been debited to pass a credit entry towards expenditure account -staff expenses. After all we bankers follow the practice of double entry in accounts.

I hope , my points mentioned above will be taken in right spirit by all concerned. 
Transparency in the matter prove beneficial to all. 
I however beg pardon if anyone feels hurt by my raising above points .
God bless you all.





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