The Government and the Reserve Bank of India (RBI) may need to venture in to stay away from an uncommon occasion in Indian banking. Near Rs 1,000 crore of Union Bank of India’s introduction by account of letters of Undertakings (LoUs) issued by Punjab National Bank is expected in the following couple of days.

PNB to prove its innocence before the year closing!

In the event that the state-possessed PNB does not pay back the sum by March 31, Union Bank (another legislature claimed moneylender) should regard PNB as a defaulter in its books, accommodate the advance, and even arrange the sum as non-performing resource (NPA) if auditors demand. “It would be a peculiar situation on the grounds that out of the blue a bank would be actually depicted as defaulter,” a senior banker told ET. In case of misrepresentation, banks are required to make full and quick provisioning against outstanding as well as categorize the loan as NPA”.

A step to improve the economy of India

Such misfortunes are dealt with uniquely in contrast to other sticky loans where the NPA label comes 90 days after default. “For us, it’s a genuine assert on PNB backed by records. It isn’t a misrepresentation in our books. We will take the auditor’s view. However, we would prefer not to list PNB as a defaulter. We are expecting some mediation from either the legislature or RBI so that there is a resolution by March 31,” said Rajkiran Rai, MD of Union Bank.

Despite the fact that there are debate amongst PNB and a portion of the banks which have loaned against LoUs, the defaults by Nirav Modi and Mehul Choksi (whose customers were subsidized with the LoUs) have been acknowledged as an occurrence of misrepresentation. FIRs have been documented and government offices are examining the issue.

The situation being what it is, numerous bank auditors may demand that LoUs developing before March 31 be depicted as NPA for the current monetary year,” said someone else acquainted with the issue. He said notwithstanding for LoUs developing after March 31, a portion of the examiners may request that banks go into a comprehension or acquire a confirmation from PNB.

Conclusion

“It’s a precarious circumstance if a bank’s name figures in the rundown of defaulters or NPAs. This has occurred with NBFCs, however not banks. This can have isolate suggestions despite the fact that this is a benefit which is altogether different from different NPAs where corporates are borrowers. Here, there is no doubt on the capacity or goal of the borrower (PNB). “The business needs to discover a replacement for LoUs. The controller needs to eliminate it. Furthermore, the bookkeeping treatment and provisioning of late LoUs must be tended to. While LoU liabilities are under question, a debated obligation does not emerge in banks’ books because of loans and advances. A bank may have questioned liabilities because of different claims, for example, tax, loss of jewellery,” said a banker. But the step taken by Union Bank to deal with PNB fraud is a major step towards improving the economy of India by strictly dealing with NPAs. India is moving forward and stressed assets should not hamper its growth.