Forensic audit of Reliance Home Finance proved there was diversion of funds: PNB source

The forensic audit of Reliance Home Finance Ltd (RHFL) proved there was diversion of funds, said sources within Punjab National Bank (PNB), based on which it was declared a fraud account.

“The account was declared fraud based on the forensic audit. At a time when capital is so scarce, why should I declare an account fraud for no reason. It is based on facts and figures,” the PNB official said.

Upon declaring an account as fraud, banks are required to make provisions for 100% of the outstanding loan amount as per Reserve Bank of India (RBI) guidelines.

PNB’s exposure to RHFL stood at Rs 80 crore as of July 3 last year.

In January, RHFL informed the stock exchanges that the audit had not found any evidence of diversion of funds.

While the same forensic report was seen by all the banks in the consortium of lenders to RHFL, PNB was the sole lender to declare the account fraud. Led by the Bank of Baroda (BoB), the consortium also included State Bank of India, Canara Bank, Axis Bank, Bank of India, Federal Bank and Bank of Maharashtra.

“Normally, the lead bank declares fraud and other banks follow suit. But it is the individual banks’ call to make,” the official said, adding, “Other banks, if they feel their money has not been diverted and the account is regular since there was nothing wrong in the movement of funds, then even if PNB declares it a fraud, they can well not declare it a fraud.”

According to an invitation for resolution plans for RHFL by BoB, total outstanding loans to the company as on 3 July 2019 stood at Rs 7,109 crore.

The move is likely to affect the risk settings of RHFL and would alter the market and public perception of the company, the official added.

In another high profile case, PNB declared its Rs 3,688 crore exposure to mortgage financier Dewan Housing Finance Ltd (DHFL) as fraud earlier last month.

The developments come at a time when RBI governor Shaktikanta Das asked banks to proactively raise capital in view of the likely surge in non-performing assets on account of the pandemic.

The PNB board approved a plan to raise capital of Rs 10,000 crore in July through equity share issuance, private placement, qualified institutional placement (QIP), further public offer (FPO), rights issue or any other modes.