Poor Q2 nos reflect higher provisions, NPAs: PNB

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26 Aug, 2025 12:21

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Punjab National Bank missed street expectations on all parameters in the second quarter ending September 2014. PNB CMD KR Kamath explains how increased provisions were responsible for its performance. The bank also provided for its assets over and above the regulatory provisions.

Below is the transcript of KR Kamath’s interview to CNBC-TV18’s Ekta Batra and Reema TendulkarEkta: Wanted some clarity with regards to the Rs 1700 crore provision figure which has come up this quarter. I did hear you mention some additional provisions on account of higher employee provisions this quarter. Can you break it up for us and was their any sort of exceptional that came through this time around?A: Talking about the employee provisioning for the impending wage revision we have been making provision at the rate of Rs 60 crore a month that is Rs 180 crore per quarter, this is from November 1, 2013. Now this quarter we have accelerated this provision, instead of Rs 60 crore per month we have made Rs 80 crore per month. So instead of Rs 180 crore every quarter, this quarter we have made Rs 240 crore. Second is in terms of AS-15 provisions what we make for the employee related things, compared to last year we have made additional provision of Rs 273 crore during this quarter. These are the two provisions which we made in relation to the employees. Coming to the provision what you are talking about which is related to the NPAs, Rs 1638 crore, I did mention that normally whatever is the recovery in the return of assets, we use that money for again providing for the assets over and above the regulatory provisions, plus we provided additional Rs 200 crore. So out of Rs 1638 crore what we have provided for the NPAs, Rs 961 crore is the regulatory provision and Rs 677 crore is over and above the regulatory provision.

Reema: What caused the margin pressure on a quarter-on-quarter basis because your net interest margins (NIMs) have come down from 3.42 percent to 3.18 percent? Secondly do you expect your net interest margins to bounce back?A: There are two reasons for this, one is that our credit did not grow in a big way, our credit has grown only by Rs 10,000 crore and the growth has come basically in retail, SME and agriculture and retail. Retail is a portfolio which is offered at very competitive pricing today, one. Plus there was a reversal of about Rs 294 crore which is on account of the funded interest term loan (FITL) that happened during the quarter. So this write back reduced my overall interest income. Otherwise my total interest income is as projected by the market at around Rs 4400 crore. Now this brought down the reversal and more concentrating on the retail that brought down my NIM by 3.18 percent. Of course we had given a guidance that for the year the NIM will be somewhere around 3.2 to 3.25 percent, for the half year it is at 3.3 percent and as a management we will always focus on improving the NIMs. So we will work on improving the NIMs from the present levels.

Ekta: Can you take us through how much was asset quality for fresh slippages and fresh restructured loans in terms of fresh additions this time around?A: In terms of the upgrade of assets this quarter it was Rs 637 crore. Cash recovery this quarter was Rs 171 crore plus cash recovery in written off assets is Rs 483 crore. Put together we have a recovery of Rs 1550 crore in the NPAs including return of recovery. We have written off Rs 1099 crore during this quarter.Coming to the slippages this quarter the slippage was Rs 3974 crore consisting of fresh slippage of Rs 3565 crore and Rs 408 crore of increase in the already slipped accounts.Now this slippage if you look at the sectors where it has come, agriculture has contributed Rs 560 crore of slippage. Industry has contributed Rs 1453 crore of which SME is around Rs 598 crore. Services have contributed Rs 901 crore of which SME is Rs 361 crore. Retail has contributed Rs 211 crore of slippage.Ekta: What about fresh restructuring?A: It is Rs 3297 crore of restructuring — consisting of Rs 2152 crore under CDR, Rs 48 crore under SME, non-CDR Rs 1092 crore and Rs 4 crore of an NPA restructured.Ekta: There has been a significant increase in your fresh slippages as well as your fresh restructuring this time around on a sequential basis. Do you expect your trajectory to continue at this elevated pace of over Rs 3000 crore for the next two quarters? What is your guidance looking like for both slippages as well as restructured loans for the second half?A: The restructuring should not be as much as it was in the second half, it should come down because I did mention that the government has started announcing various measures in addressing some of these sectors which have been stressed.Now in terms of the slippage because between the announcement of the measures by the government, implementation of that and the impact of that, there is going to be some lag time. We may have to suffer the pain during these lag times. So our effort is to see that we bounce back into the recovery efforts and we see that as I told a little while ago last year our recovery in written off asset full year was Rs 515 which we have already crossed in the first half year. So we are intensifying our efforts to see that the intensity of the slippages come down. Reema: What's the expectation of the slippages run rate in at least Q3 as things stand now?A: It will be too difficult for me to predict it because it is dependant on so many other issues.Ekta: Are you building up your credit because I heard you say that you're lending now to retail, SME as well as agriculture. So have you cut down your loans to may be coal, power you know all this sectors where you might see some uncertainty? Is that a step which is taken by PNB to consolidate you loan book and may be concentrate on asset quality, a step that you had taken a couple of quarters back as well.A: If you look at it for the last one and a half to two years from October 1st, 2013 we have been consolidating on these areas. Looking at very conservative approach on the growth when there was stress in the economy. So I gave the breakup of this, if you look at the increase in the power sector or the infrastructure growth it is only 6.1 percent now. Of which power sector growth is only 5.9 percent, telecommunication is minus. Our commercial real estate is negative by 13.5 percent. So we are not growing credit in the areas where we have seen stress and that is why we are focused on retail, agriculture and SME where the risk is diversified.Reema: At least in Q1, I believe 43 percent of the loans that moved out of your standard restructuring category turned in to non performing assets (NPAs). Can you tell us what's the update in Q2? What percentage of your standard restructured category loans turned into NPAs?A: I don't have the exact number now but I just saw the number just before coming to the conference it seemed to be something like Rs 1,100 crore of restructured assets slipped into NPA.Ekta: Can you give us a sense in terms of whether you are more confident about lending to other sector such as power and coal especially post what was announced yesterday by the cabinet in terms of the e-auctioning which will take place in the next 3 to 4 months. Would you be now more confident if in case a power company comes and asks you for working capital loans?A: On a working capital loan we have never been conservative in sanctioning anytime because wherever we have funded for setting up a plant or a generating unit we have been always in the forefront in lending them for their working capital requirements. So we have never put a ban on funding working capital because wherever the term loans are given it is incumbent on the banks to give the working capital.Now incase of setting up of a new project probably we will wait and watch because the announcements have been in respect of the units which are already set up and who want the coal. And once the impact of this is felt and there is a correction that happens in the sector then on a selective basis we will definitely look at these sectors but then there is going to be a lag time on this. Reema: One final question on the asset quality. You gave us your guidance on net interest margins for FY15. Can you tell us on the asset quality what is the bank targeting in terms of an exit trade for your gross NPA ratios as well as for your net NPA ratios?A: It is very difficult for me because the NPA formation has got lot of linkages. So lot of it and the recovery pace is also depended upon the way the economic revival happens and the pace at which it happens. But I would only say that we are working to bring it down and we will definitely see that incase we can work below 5 percent we will be very happy.Of course I know that this can be worked in two ways by increasing the denominator also which we have never done just to play on the numbers. So while we will be conservative on the credit growth looking at the sectors but definitely we will work out on bringing it as close as possible to 5 percent.