Eye lower slippages ahead, says PNB's Gauri Shankar

Q: I just wanted to ask you about the asset quality because that has been quite weak this time around; gross non-performing assets (NPAs) at 6.5 percent. Just tell us how long do you think it could take before things recover?

A: Certain very important things I would like to share immediately. What has been happening is for quite sometime, you should definitely be aware that out of the total portfolio of advances that we have, a huge number belongs to infrastructure and of infrastructure is the part of road, ports, power, etc and the total amount of restructuring that has taken place during the year is Rs 15,241 crore.

You can say roughly around Rs 15,241 crore and out of which more than 50 percent, 52 percent has taken place this year, this quarter in Q4 that is amount to Rs 7,780 crore. Please appreciate that we had to do this because the Reserve Bank of India (RBI) forbearance was about to come to an end on April 1, 2015.

We were forced to do that so as to keep the accounts alive. With the result, our total portfolio of standard restructured accounts has remained at Rs 38,315 crore which is about 9.72 percent of the total advances and our NPA’s are at 6.55 percent, total assets comes to 16.27 percent.

Out of the total cumulative figure of Rs 38,315 standard restructure accounts, the total 89 percent belongs to industry, 89.5, in fact roughly 90 percent. And out of that 90 percent, a huge number that is 14.6 percent belongs to iron and steel and infrastructure is 42 percent.

Please appreciate a bank of the size of Punjab National Bank where a huge portfolio is of infrastructure, iron and steel and followed by that is mining, textiles, aviation, now sugar is also into problem. Now, the 42 percent of infra out of which 35.7 percent is power. We were forced to because how much of stress can we be in?

Ultimately, when advised by the central auditors and when we also ourselves see, we had to restructure. When we restructure, we have to fund the interest. You know that very well; FITL, funding interest term loan we have to create and when we create that we have to book the, we have to derecognise income. And we derecognise income, the amount is going to be huge which hits our bottom-line that is net profit.

But please appreciate that the operating profit of the bank may appear to be just flat, but the growth on a year-on-year basis of five percent.

It is touching Rs 12,000 crore which is definitely much higher. I would not like to comment on the peer banks and all, but domestically just next to State Bank we stand as the operating profit.

About the other things you want to ask you can but about NPA, if you say how long it is going to stay, let me tell you, we are sitting on a gold mine. What I mean by that is so much of provision we are having on NPAs, the moment because so many steps have been taken by the government of India.

Q: What is the pipeline, are more people making a request for restructuring? You have already seen 40 days of this quarter. Rs 7,424 crore is your fresh slippages and Rs 7,900 crore is your fresh restructuring so technically, Rs 15,000 crore more is stressed in one quarter, what might it be this quarter?

A: There is not even a single big account in the pipeline so far as restructuring is concerned and that is the reason Rs 7,880 crore have been restructured in Q4.

I was sharing just now that this huge amount belongs to infra and iron and steel, followed by textile and other important including sugar. Now there is no pipeline at all but there can be some small accounts here and there because it is a huge bank.

There can definitely be some restructuring, I don’t rule out completely but it can just be a few 100 here and there. However, under corporate debt restructuring (CDR) mechanism as well as under normal restructuring there is no pipeline at all. You can say that it is simply freezed.

Hardly anything you will find because everything that we could do to restructure, we could do because of the forbearance coming to an end we did already in Q4.

Number two about the NPA, such a huge amount of NPA has taken place it is because so much of a strain is there almost every account shows signs of sickness and we have been holding for quite sometime.

In Q3 also there were slippages so quite a few bigger accounts we could not because in Q4 again the audit is of such a nature that every account is seen very clearly. We have also found but still we could continue and we are the first large public sector bank of our size out of the peers we are the first to come to the market.

I would request one thing in your previous thing which I heard you said that there can be some leadership issue also; there can be some other issues as well. Let me tell you I am holding the additional charge of Managing Director (MD) and Chief Executive Officer (CEO) and things are very much under control so far as leadership is concerned. We have taken all steps pertaining to HR, pertaining to NPA.

Our NPA department which is called recovery department is instead of one for the past of about five months is headed by two General Managers (GMs) they are doing wonderful job, the recovery is much more.

Q: What is your recovery in that case?

A: The recovery is definitely far better in this quarter in particular. Cash recovery in Q4 has been Rs 1,354 crore as against Rs 749 crore in Q1, Rs 1,016 in Q2 and Rs 1,081 in Q3.

In whatever are the lower hanging fruits, whatever has happened this time, we are going to recover like anything. The moment, it is envisaged that the economy is going to grow by somewhere between 7.5 and around and we are proxy to the country’s economy.

The moment they improve, the industry is going to improve, the infrastructure will improve. What do we do when we are having that much of big share on the infrastructure?

Q: Would you be confident that fresh slippages in the April-June quarter will be half of Rs 7,000 crore?

A: Definitely. Giving exact number will not be wise on my part. But, I will just share with you one thing, that so much of stress that we have taking and we have now, we ended it up as 5.97 percent which increased to 6.55 this time. It is not going to worsen.

We will recover like anything and no fresh slippages now. So far as big accounts, we have been seeing some stress that we could not do this time. Just two or three accounts maybe there is the pipeline otherwise there are no such accounts which are going to go further. But the economy has to improve and we will be improving definitely. We are quite positive about it.

The moment it happens, the stress may be there in Q1 and Q2, that too very little but not as big as this has been. Things are going to be better, we are a huge bank, we know our responsibility.

Q: You have had a pre-tax loss this time of about Rs 630 crore. It is only because you got a tax written that you have been able to show a profit. If before they written in of the tax it is a loss how would it look in the first quarter?

A: First quarter, we will be having definitely profit, no doubt about that. The main reason, only reason I can tell you is it is because when NPAs increase we have to de-recognise interest in some case. It is not that every NPA that becomes is going to become as on March 31, 2015. There can be some date like February 1.

Incase of restructuring when such a huge amount of restructuring has taken place we have to create funded interest term loan (FITL). When we create FITL we have to derecognise interest. Therefore so much of de-recognition of interest has taken place which has hit our bottomline.

However, please appreciate the operating profit is good and our interest income is good. We have reduced our base rate yesterday but the deposit rates we had reduced thrice before. The impact because of the lag effect these things could not shape properly. Now in June and September the cost of deposit which is already controlled 6.09 is going to be even less than that and our net interest income (NII) also.