May 09, 2013, 05.29 PM IST
Punjab National Bank expects its net interest margins to contracts by nearly 10 bps on to 3.35 percent going forward as demand for interest cut from the market increases.
“There has been consistent demand coming for reduction in interest rate because if you have to facilitate growth, interest rate needs to come down," Kamath said.
After 75 basis points reduction in repo rate by Reserve Bank of India from the begining of calendar year, some amount of monetary transmission has to happen, Kamath explained. This will call for reduction in lending rate, which may impact NIM.
However he goes on to add that the bank clearly has intention of holding on to NIM at 3.5 percent but market forces can bring it down by 10 basis points. It must be noted that the second largest public sector bank has been maintaining its NIM at 3.5 percent, despite tight monetary policy environment.
The bank today reported a relatively pleasant Q4 earnings. While its net profit declined nearly 21 percent to Rs 1131 crore on higher provision, its net interest income rose 14 percent Y-o-Y to about Rs 3,780 crore during January-March.
Bank’s provisions for bad loans rose 44 percent on year to Rs 1,478 crore. Bank’s reduced its share of bulk deposits and year-end short term loans aimed at expanding credit growth helped to improve NIM to 3.51 in March quarter from 3.47 in the previous quarter.
Kamath said that power sector continued to remain under pressure. The bank has one of the highest exposures to power infrastructure sector as compared to its peers. PNB’s loan restructuring pipeline also continues to be pretty big, however it has been trying to reduce stress on asset quality. The lender has already restructured its loan exposure to Suzlon Energy and the same process is on for State Electricity Board loans.
Kamath hopes deposits and advances to grow at 16-17 percent by FY14 end as the liquidity is likely to improve in the economy with relaxation in monetary policy.
Below is the verbatim transcript of the interview
Q: What were the fresh slippages and restructured assets only in the fourth quarter? It is almost looking like nil fresh slippages, is it?
A: Every quarter the numbers get netted off. So to that extent it is not correct to say that there has not been a slippage. If you want the numbers of the last quarter, I would say that the slippage has been Rs 970 crore in this quarter. The cash recovery has been Rs 442 crore and up gradation has been Rs 152 crore. Whatever slips in this year, it gets netted off.
Q: So your total slippages for the year stood at about Rs 8,000 crore right?
A: Total slippages for the year stood at Rs 8,647 crore. It consists of a fresh slippage of Rs 7,809 crore and Rs 830 crore is the addition in the existing slipped accounts.
Q: Let me come to the margin picture. A flash just ran quoting you saying that you expect margins to come down from 3.5 percent to 3.35 percent. PNB normally ranks very high among PSU bank margins but this pressure would come largely because of the lowered interest rates or greater competition or less demand for credit - what is the reason?
A: For the last 15 months I have held back to a 3.5 percent growth on the net interest margins (NIM) and we have been delivering. Now, last quarter it went to something like 3.47 or 3.45 percent but we have come back in this quarter at 3.51. When I made this statement, I also made a statement very clearly saying that a time has come for me to probably marginally lower my guidance on the NIM because of the pressures developing in the market. There has been a consistent demand coming for reduction in the interest rates because in case you have to facilitate a growth, you need to bring down the interest rates and some amount of monetary transmission has to happen now. To that extent, it calls for reduction in the lending rates. There is a limited scope for us to reduce deposit rates today because the deposit rate has been sluggish. If you try to further reduce the deposit rates, there is a possibility that the deposits may not flow to the banking system. This very clearly shows the friction between the lending rates and the borrowing rates because of which I said maybe we will have to reduce. But I also punctuated the statement by saying that you need not be surprised that if I come back with a performance of 3.5 percent. This very clearly shows our intension of holding on to 3.5 percent but we are recognising a pressure that is coming in the market which can sometimes bring down by 10 basis points.
Q: Is this a market pressure or is it a shareholder pressure that you have to pass on interest rate cuts?
A: It is absolutely a market pressure because all of you have been asking us every time that when you are reducing the rate of interest. So somewhere we have to respond to you.
Q: For the restructured assets if I am not mistaken you mentioned a figure of around Rs 6,400 crore in terms of fresh restructuring in the quarter. Can you just confirm that for us and what was the nature of the restructured assets and what is the pipeline looking like?
A: Rs 6,444 crore are the total amount in the restructured during this quarter. But I want to clarify here that this also involves some of the accounts, which have been earlier restructured where we have to disburse some money. So, this amount we will have to rework and put it on the website.
Q: How are things panning out on both these slippages and restructured assets in the current and next quarter. You would have a fair idea. This is the second straight quarter when your gross non-performing loans (NPLs) as a percentage of the total book has fallen, last quarter it was a bare six basis point (bps), this time substantial 40 bps, is this setting the trend?
A: Yes, I think you should look for a similar performance from us in the coming quarters. I also want to say that this gross non-performing assets (NPA) percentage coming down is despite the denominator remaining almost stagnant or at a very low level of growth. So now when the growth picks up also and our efforts on the recovery starts to pay results, I think we should look for better performance in the days to come.
Q: On the recoveries what is the trajectory that we expect because on quarter on quarter basis the recoveries have fallen from around Rs 2500 crore to Rs 592 crore. How aggressive do you think the recovery and the upgrade trajectory will look going forward and what would be a sustainable figure?
A: I am not sure how you made this statement but let me give you the figures of the four quarters. It is Rs 570 crore in June, Rs 384 crore in September, Rs 545 crore in December and Rs 443 crore in Q4. But the upgradation has been much better this quarter. So when you look at the reduction you need to take the total of the recovery and the upgradation.
Q: There is a new found rigor among public sector banks to recover rather aggressively. Are we going to see more of this, will we see you also stepping up recovery procedures?
A: Definitely because a recovery effort is slowly stepping up the pressure on the borrowers. You start with the negotiation, you discuss with them, you find amicable solutions and if it doesn’t give you the results then you try to bound pressures. Some of the cases where our efforts still have not yield results, we will also mount pressure on the borrowers.
Q: So should we expect from PNB in the public space your top defaulter names?
A: Not at the moment. Let us see, as and when it evolves you will see it.
Q: In terms of stressed sectors would that be a comfortable thing to talk about because you all do have high exposure to power, agri. Where was the maximum amount of worsening in terms of asset quality on an incremental basis which came through?
A: It is not that one sector is creating a problem in terms of asset quality but if you look at the pressure or stress we are seeing pressure in the power sector. But I am sure that with the steps that the government has initiated we will be in a position to find solutions to these and once the wheel starts moving in the positive way it can help us to recover in so many other related sectors also.
Q: So will Indian Banks' Association (IBA), since you are the chairman of IBA, take up a position on pressuring top defaulters whom the finance minister correctly called affluent promoters of sick companies? Will there be an IBA effort on the matter as well?
A: I need to clarify the position of IBA. IBA is an advisory body, IBA doesn’t decide for its members. So may be the members of IBA when we sit across we may decide on some strategies but it doesn’t happen under the banner of IBA.
Q: Should we therefore expect more steps from other banks individually to show greater rigor?
A: Absolutely you should look for further efforts from the banks especially the public sector banks in terms of stepping up the efforts of the recovery.
Q: Just had two question one specifically on the strategy that you all spoke about in terms of a consolidatory trend. How long is it not going to be a concentration on the balance sheet for PNB that you all are going to continue, something that you all stated in the previous quarter as well as this quarter.
Can you give us some numbers, what kind of advances and deposit growths therefore are you looking at for FY14 as well the interest rate cut, when can we expect it?
A: In terms of the consolidation we did initiate this process in Q3 of the last year, October-December quarter and we continued it in the subsequent quarter also. Now this will have a base impact on the growth numbers. So the growth numbers will get corrected from the quarter again from October to December but then the major initiative that we have completed and we will get back to the normal numbers of growth from Q3 of the calendar year.
Q: Any hint on timing, quantum of rate cut?
A: The Asset-Liability Committee (ALCO) will decide but I have made my intentions very clear.
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