After having posted a significant improvement in its asset quality, Punjab National Bank will be refinancing its stressed loans in Q2. In an interview to CNBC-TV18, executive director Ram Sangapure says the bank refinanced loans worth Rs 2500 crore in Q1 and will be refinancing more Rs 3000 crore worth loans in Q2.
In an interview to CNBC-TV18, Sangpure says of the loans to be refinanced, 70 percent are from steel sector and 30 from power. Indian steel industry has faced a double whammy of weaker prices and higher imports dumped from China.
PNB, India's fourth-largest state lender by assets, could take control of some of the most heavily indebted steel companies and sell them on as part of a restructuring. About a quarter of the bank's USD 4 billion portfolio of steel loans is stressed.
While Ananda Bhoumik, senior director, India Ratings believes recoveries may not see a pick-up this year, Sangpure is optimistic that the incremental slippages will reduce as the downtrend has already begun.
Below is the verbatim transcript of Ram Sangapure and Ananda Bhoumik’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: The problem or the doubts of the market have risen because of the refinanced assets. Now we have to look at bad loans as NPLs, restructured and refinanced. Restructured may get phased out but refinanced is increasing. What is the total amount of refinanced loans on your radar for Punjab National Bank (PNB) and how much have you already done, how much are you likely to do before this quarter is out?
Sangapure: So far as refinance or strategic restructuring is concerned, we have done accounts worth Rs 2,500 crore. In the next quarter we visualise somewhere around Rs 3,000 crore worth we will be going for.
Latha: Not Rs 10,000 crore because I thought in the analyst meet there was a number of Rs 10,000-11,000 crore guidance?
Sangapure: No, not for the next quarter; definitely not Rs 10,000-11,000 crore.
Latha: In this Rs 5,500 crore where you have clarity, Rs 2,500 crore done and Rs 3,000 crore to be done what is the sectoral distribution? How much is power, how much is steel?
Sangapure: Most of it is from steel actually.
Latha: None at all from power?
Sangapure: Power maybe about 30 percent you can take.
Latha: If 30 percent is power and 70 percent is steel how are you’ll looking at refinanced loans? Will you now start adding it into stress lock, stock, and barrel?
Bhoumik: The approach we are going to take and we would probably publish shortly is we are going account by account on the steel and power, infra and we are trying to get a sense of even assuming peak capacity down the line say in three or five years, is the debt level sustainable? Our early sense is it probably is not.
For various reasons cost escalation, delays, etc these projects have just taken on too much debt and possibly even at peak utilisation you may need to shave some of the principle off. So, I think down the road bankers are probably staring at some amount of principle haircut. We are trying to put a number and as I said get a definitive sense shortly.
Sonia: Qualitatively do you think there is any moderation in the bad loan formation of the PSU bank sector as a whole or because of higher refinancing you would still continue to be worried?
Bhoumik: I think the environment in terms of accretion is roughly the same as what we had seen earlier this year. So, there are no new surprises. What has caught everybody by surprise is the fact that the pickup hasn’t been as robust. As a result of which some of the assets we were hoping would come back on stream, will take more time. So, FY16 is going to be bit of a washout as far as recovery is concerned.
In terms of incremental slippages, probably not too many surprises but the concern I think is going to shift to what is the appropriate level of provisioning for some of these refinancing and restructured assets. Is it okay to go by nominal 5 percent or should we take a higher number; that is what we hope to have some clarity.
Latha: I don’t think the rules require even higher provisioning, do they?
Sangapure: I don’t think there is any additional incremental provisioning per se and banks are following the guidelines from Reserve Bank of India (RBI); no bank can violate the guidelines from RBI. So, from the perspective of provisioning, nobody should have any worry on that account. The question is how far it will take for the revival of the economy and how far we would be able to sustain this kind of adjustments; that is the big question.
Latha: It is a little dangerous that refinancing has no extra provisioning at all; at least restructured loans had that 5 percent extra provisioning. However, to come back to the same question this refinancing loans, in the restructured loans what we saw over the last three years is that above 30 percent became NPLs, the remaining recovered. So when you look at the refinanced loans for instance this Rs 5,500 crore of PNB, how much will you treat as impaired or stressed? Will it be good to believe that power, for instance we know that a company like Tata Power went for 5/25, Tata Power was never not going to payback its loans, it was not a stressed loan at all but steel practically half of them will never be able to payback their loans if they were not refinanced. So, will you make a category like everything steel is impaired – how will you take, 50 percent of the refinanced loans is bad loans, how will you calculate them?
Bhoumik: We won’t generalise. We are going account by account for the 40 largest and our sense is depending upon the account about 20-30 percent provisioning is probably appropriate. I think PNB is right, there is no regulatory requirement. We are not talking of the next quarter’s requirement, we are talking of down the road, we are talking of an economic value of those assets rather than an accounting value.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
