Punjab National Bank expects to maintain margin at around 3.5 percent fgoing ahead, says ED Rakesh Sethi. The bank is hopeful of ending the year with 10-12 percent growth, he told CNBC-TV18 in an interview.
Public sector lender posted a rise of 2.3 percent year-on-year in its first quarter (April-June).
He further added that its savings have been growing at a very healthy rate and term deposits have risen by 27 percent. Its credit growth is muted so it does not require more liquidity at the moment. “This kind of growth is enough to sustain our credit growth. So, I don’t see any pressure at all as of now,” he added.
Below is the verbatim transcript of Rakesh Sethi's interview on CNBC-TV18
Q: How were the non-performing loans (NPL) looking in the current quarter? Can we have sudden big accounts like Winsome?
A: If you take the total slippage which is about Rs 3,594 crore, Rs 1,656 crore is out of one large gem and jewellery account. This was a 27-year-account that just slipped and the rest was Rs 1,938 crore. If you take the reduction, that comes to about Rs 1,969 crore. But for this one-off account we recovered about Rs 55 crore during this quarter, but still since there were signs of weakness. It would be prudent that till the (CDR), in case it goes through to classify it as an NPL and keep the option open for recovery rather than letting it hang.
Q: Is the account in CDR only for now or are you still not sure whether it would go further?
A: On Thursday, the promoter had come in and presented himself before the CDR. The CDR has put out certain conditions, which if we fulfil, then it will be consider for admittance.
Q: Do you think it will pull through or will it ultimately have to be written off?
A: There would be a recovery. After all, the man has been in business for almost a generation.
Q: At the moment, have you provided 15 percent for it as first year NPL?
A: No, a little more, almost 40 percent more than the regulatory requirements. So, we provided about 25 percent. As soon as our results were announced, you said we had under provided because the provisioning coverage ratio (PCR) had come down. The PCR would naturally come down for a large advance unless you provide 58 percent on this particular account. So, when you provide 25 percent, automatically it comes down.
Q: Even if we took off Winsome which is Rs 1,938 crore, it is still double of the quarterly slippage last quarter, which was Rs 970 crore. Is there trouble in the book?
A: Across the board it is a derivative of the economy, the slippages is a derivative of the economy, as long as recovery is under our control we would be comfortable. There was one large steel account, which was in CDR, which won’t meet the projections and couldn’t repay back and therefore, slipped.
There was another account in the oil sector, which was also in CDR, that also slipped, put together there were about Rs 375-400 crore. So, all this stresses that we thought would be okay, were given an opportunity of restructuring. Some of the restructuring does not seem to have worked out and once it has slipped, it is slipped.
Q: You have seen one third of the current quarter. Are you getting any sense of whether things are on the mend?
A: As of now, there is nothing to show that there is a substantial improvement except that the rupee slippage has stopped. Once it comes below 60, to that extent, it has been a good thing but on the reverse side with liquidity having been sucked out there would be pressure on interest rates for the industry as such, maybe not for us and that would be a counter measure.
Q: Do you see pressure to push up rates at all?
A: Our savings is growing at a very healthy clip, about 15 percent because of the franchise or branches that we have. Term deposit is also growing at healthy 27 percent, whereas the credit growth is muted to an extent. It does not require more liquidity for the present. This kind of growth is enough to sustain our credit growth. So, I don’t see any pressure at all as of now and I have buffer of almost 6 percent on my statutory liquidity ratio (SLR), which is about 29 percent.
Q: Is the buffer of 6 percent now a bit of a drag in terms of mark-to-market losses?
A: We are hopeful that these temporary measures will pan out for better. In case they persist, that is the price we have to pay.
Q: Would you have some kind of a thumb rule that if yields rise by 25 basis point (bps) then the loss on the book is X crore?
A: It all depends on how much is available for sale (AFS) and that is a dynamic figure.
Q: Do you think this quarter you contracted the book itself (quarter-on-quarter)?
A: Quarter-on-quarter was virtually flat, 309 in March as the credit and it was 311 this time, virtually flat.
Q: Do you think that margins will be under pressure in the current quarter or you still maintain 3.51-3.52 percent because you say that you are not under pressure to raise your deposit rates?
A: We gave our annual guidance of 3.35 percent and said that we have the ability to surprise on the positive side upto 3.5 percent. We are always living upto it. We hope that the yearly guidance will continue to pan out.
Q: Will you have any capital requirement since the book is flat? Would you require capital at all this year?
A: As on date, because of Basel III there would be some, we have sought about Rs 1,500 crore and we hope to get it from the government and we are also having some plans to put in some capital in one of our subsidiaries that is in London, there is a demand there and then in case we decide to go to Myanmar, which we are. So, there would be some capital requirement. So keeping all that in view and expecting that the second half is the busy season when credit growth grows and we are hopeful to close the year at about 10-12 percent or maybe upto 15 percent growth by the time we come to the year end.
Q: How was the treasury book otherwise? Could you make some gains because after all in June, we saw some fairly decent bond and especially corporate bond prices?
A: For 75 days we booked trading profits of Rs 287 crore which comes into the book and is reflected in our numbers. But in the last 15 days, we took a hit of about Rs 92 crore and depreciation on the existing AFS book. So, one third of it got squared off. So, whatever opportunities were there, treasury made the most of it.
Q: What about the growth in the current year? Will credit grow or there are some people who believe that the way the economy has contracted looking at the Index of Industrial Production (IIP) number and the export performance, people are calling for even a 10-12 percent credit growth. How might you do as a bank?
A: We were traditionally very strong on the industry side and there was an opportunity for us to grow on retail. Retail was less than 10 percent of our total book, which has now gone upto 11 percent, so, there is a potential there.
Around 65 percent of our branches are in rural and semi-urban centres, where there is an opportunity for agri and small and medium enterprise (SME). So that gives us the confidence that even if industry doesn’t really take off our franchise strength and the fact that we have started a concept of Retail Asset Branches (RABs), which are geared about 78 of them all over the country and will help us to leverage. To an extent, this has borne out the fact that our housing loan has grown by about 14 percent, something which is not happening.
Q: From a corporate perspective, you will start to look for more retail assets, what will be the growth area?
A: We are doing that. There are sectors that are credit starved like agri, SME, retail, so where there is an opportunity for us we would make the most of them. Since there is hardly any industrial credit to come by, we have no other alternative than to wait.
Q: What about the restructured assets? The total was modest at Rs 2,772 crore this quarter?
A: Yes, absolutely.
Q: What was the colour, largely power, in these power discoms?
A: It was not a discom, it is power of one of the largest industrial groups where we extended the COD date and the repayment date which was about Rs 1,122 crore.
Q: How would you think the restructured book might progress?
A: As on date, we have seen the slippage of 13 percent and the upgrade out of non-performing assets (NPAs) restructured is about 18 percent and so, we expect that between 13-15 percent. From the beginning, we have been maintaining that not more than 15 percent of our restructured book shall slip. Out of Rs 34,000, which is our restructured book as of today, Rs 5,705 crore is not restructured, but comes into that ambit because of the definition of the Reserve Bank of India (RBI).
Q: Are you expecting the restructured book to grow? Is there visibility on some accounts?
A: Not straightaway, but then they always come in the last month of that quarter. We are keeping our fingers crossed on that.