Bad assets not from any particular sector: PNB

Punjab National Bank's second quarter (July-September) net profit fell nearly 12% year-or-year to Rs 1,066 crore in 2012-13. Provisions against bad loans dented its profit margin. The bank made loan provisions of Rs 1,074 crore as against Rs 710 crore in the corresponding quarter of the previous year.

In an interview with CNBC-TV18, KR Kamath, chairman and managing director, Punjab National Bank pointed out that NPAs were well spread across sectors. The bank did not bear the burden of bad loans from any particular industry.

The bank may see some large loan restructuring cases coming up. However, the lender will be closely monitoring every (loan) account.

Below is the edited transcript of Kamath's interview with CBNC-TV18

Q: Your bank's results today show Rs 14,000 crore gross NPLs. How do you think this is going to proceed from hereon? In the first place, what was the source of this 4,500 fresh slippages?

A: I just did an analysis to see whether there is any concentration of  non performing assets (NPAs)  in any particularly segment or in any particular geography. We did not find anything like a concentration or something that has been hitting us from any one particular segment. So I would say, that it is a well spread amount. Infact, if you look at the current quarter delinquencies, almost 25 percent of it, Rs 1,171 crore, has come from agriculture; Rs 900 crore has come from MSME; Rs 347 crore has come from retail and around Rs 1,786 crore has come from the industry.

So to that extent, I would not say that the delinquencies are not coming from any particular segment or any particular geography, it is uniformly coming from every side.

It has got an impact of what is happening in the economy to an extent, but I would not like to blame the economy for this purpose or the slowdown of the economy. As the management we would definitely like to own this up and then try to work on improving this.

Also read: PNB Q2 net falls 11.6% to Rs 1,065 cr, stock tanks 5%

Q: So what is the sense you are getting in terms of the coming quarters for the second half? Have you seen the biggest chunk going out in this second quarter or do you think that this kind of a problem may repeat?

A: There is an impact of what's happening in and around us on the asset quality. If the economy takes a U-turn in terms of growth teamed with some good initiatives taken now and then, we can say we had the worse of it. I am a little guarded in saying that everything is over. I will definitely watch what's happening in the economy and then comment upon this.

Q: So which sectors do you see going forward coming under pressure? Do you feel that these things have not yet bottomed out and perhaps some of the bigger groups could be coming under pressure like we have already seen in case of the UB Group or even the media company?

A: There are some of larger accounts looking for restructuring or they are on the brim of it. So, it is really a question of how the economy pans out and how it impacts the groups. I don’t look at one particular segment or a particular geography where I have a serious issues coming in. I need to be very watchful on all segments and all areas.

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Q: Recently Crisil downgraded the bank facility of Lanco and that Rs 250 crore loan was due to your bank. Do you think some lumpy accounts might happen in the remaining part of FY13 or in FY14?

A: It is quite clear, that in case the units for which you have lent are not in a position to generate revenues or service the loans, then that is going to be an impact on the asset quality of the banks. It has been our effort to see that wherever the investments have gone and they aren’t in a position to generate sufficient income, all of us have to work together to see that the bottlenecks are taken care of. It needs to start generating income. If it does not happen, then obviously either there should be a regulatory forbearance which is given, which does not appear to be a possibility or the banks may have to take a hit on these accounts.

Q:  As a leading banker, do you think it is possible that asset quality just begins to crumble. Do you get that feeling or do you think some of it perhaps is behind and some of it needs to be watched still?

A: If the banking secretary has mentioned that asset quality is getting into a stress, I would probably say that I have a larger view on what can happen from their side. In most of these places, if things have to reverse, there should be an intervention from the Government. For example, incase somewhere a fuel supply is the issue and the investment has happened, now the fuel supply either in the form of the coal or the gas has to happen with the Government intervention.

If somewhere somebody had said that it will not happen, probably I think they may have a much better sight into these things. But investments have happened based on certain commitments and if these commitments are met in terms of fuel supply, probably this investment will start earning. Larger economic issues need to be addressed.

Q: What is the percentage of your exposure to these kinds of projects in power or in roads, where there is a stress because of policy issues?

A: Overall exposure to power is about Rs 26,000 crore and to the roads is about Rs 10,000 crore.

Q: How would you see the net interest margin and credit growth for the full year?

A: We have sustained net interest margin at 3.5 percent. I have been giving guidance on this at 3.5 percent for the last three years. So, looking at the stress, maybe it may go down by 10 bps or so. But our efforts will be to hold it on the committed level of 3.5 percent. The credit growth per se is slowing down. We would look for a credit growth of about 17-18 percent looking at the banking sector growing at about 16-17 percent and with more focus on their retail book. The retail is growing and we have taken steps to grow in the retail mode.

Q: What about the exposure to power generators especially Greenfield ones? Would you have a number for that?

A: The exposure to State Electricity Board (SEBs) is around Rs 8,000-8,500 crore. So you take it out, the remaining is for the generation and distribution.

Q: What about the tripartite consultation that was supposed to begin between banks and State Governments and the SEBs? Has even the first of them kicked off?

A: We were basically involved in two major SEBs in UP and Rajasthan. UP has happened very well even before this tripartite coming. The UP Government has owned up the payment of the debts which was in the books of the discoms full extent wherein the package was saying 50 percent. So it is going well. In Rajasthan, the government is working with us, they have agreed to take on this 50 percent.