Punjab & Sind Bank’s net profit rose 17.8 percent to Rs 205 crore in the April-June quarter, while net interest income – the difference between interest earned and interest paid – grew 22.4 percent to Rs 709 crore.
The state-owned bank’s gross and net non-performing asset ratios improved both on a yearly and sequential basis. The gross NPA ratio fell to 11.34 percent from 13.33 percent a year ago and 12.17 percent in March. The net NPA ratio fell to 2.56 percent from 2.74 percent in the prior quarter.
In an exclusive conversation with Moneycontrol, managing director Swarup Kumar Saha said the lender will continue to lower NPAs and slippage – fresh accumulation of bad loans – in the coming quarters while boosting loan growth. Edited excerpts:
Also read: Banks have much cleaner books now; where did all NPAs go?
Net profit has fallen on a quarter-on-quarter (QoQ) basis. What was the reason?
Profitability was hurt QoQ because of treasury income. We booked mark-to-market losses of Rs 109 crore in the first quarter (April-June). Apart from that, operating expenses also hurt the bottom line.
Domestic deposits have also fallen QoQ. What led to the decline?
Our cost-to-income ratio is very high. In March, it was around 63 percent and now it has increased to 69 percent. We are conscious of the fact that we have to manage this in an effective and efficient way.
If you see the FY22 performance, the growth in our advances was less than the growth in deposits. That means we were not generating sufficient income while we were also trying to balance the liability side. While assessing this, we found that we could shut some of our bulk deposits, which are high-cost deposits.
However, our CASA (current account savings account) performance has improved on a year-on-year basis. We have taken a conscious call that our deposits should be commensurate with growth in advances. We will be managing our portfolio so that we maintain our cost-to-income ratio effectively.
Would you be targeting foreign currency non-resident bank (FCNR-B) deposits?
We have a very small portfolio as far as my bank is concerned. FCNR rates will go up. We will also be reviewing our rates. There is a reason for some correction (in rates) required at our bank level also.
Growth on advances has been strong. What will be your focus area?
Earlier, the bank had a predominance in corporate advances, while RAM (retail, agriculture, MSME) was on the lower side. The bank took a conscious call last year to focus more on the RAM segment to de-risk the balance sheet and so that yield on advances from this segment should be higher. This year, having studied our book, especially on our large corporate advances, we find that most of the corporate side stress is taken care of, barring one or two mid-sized corporates that we can easily handle. Secondly, we are much better positioned now.
How much retail and corporate loan growth are you targeting?
While we want to grow our RAM segment by 20-22 percent, we intend to grow the corporate book by 8 to 9 percent so that the overall loan book mix is at 52:48 in favour of RAM by March. We aim to improve this to 55:45 over the next three years.
Where do you see the cost-to-income ratio by March-end?
We intend to bring down the cost-to-income ratio to 60 percent by March.
Coming to asset quality. How much of a worry are MSME slippages?
As far as slippages are concerned, the majority were from the MSME segment in April-June. We still feel there is some stress lingering in the MSME segment. On the retail side, we are not worried much. We will be closely scrutinising the MSME segment to reduce our slippages.
Any guidance on slippages and credit costs?
In terms of slippages, my guidance for FY23 is that we should be below Rs 1,000 crore for the full year. We aim to bring credit costs below 1 percent for FY23.
Where would that lead gross and net NPA numbers by FY23?
Overall, my guidance is that our gross NPA ratio will be below 10 percent by March and net NPA ratio will be below 2 percent. Though we have significantly improved NPA levels, it is still at a very high level. It (gross NPA ratio) is still a double-digit figure. We are consciously working on it. We will continue our war to bring down NPAs and slippages.
How would you achieve that?
We are exploring accounts to be sold to the NARCL (National Asset Reconstruction Company Ltd.). We intend to sell five bad loan accounts worth Rs 528 crore to NARCL and if everything happens in a time-bound manner, it will bring down our NPA. Certain resolutions are on the anvil as well through NCLT (National Company Law Tribunal) accounts.
We will also be strongly driving our one-time settlement scheme on small-value accounts. So, we will be able to bring our gross NPA ratio to below 10 percent by March 2023, and if things go well, to 9 percent also.
What is your bad loan recovery target for FY23?
We have a target of Rs 2,500 crore for recovery and upgrades. Out of that Rs 2,500 crore, we expect Rs 1,000 crore from the NCLT route.
What is the update on NARCL?
What we understand is that the discussions are now at an advanced stage. Discussions around accounts to be transferred in the first phase, the reserve price are happening frequently. In Q3 (October-December), we expect some account sales to happen. We will be selling two accounts in the first phase and three accounts in the second.
Would you be looking to bring down your stake in NARCL?
This is a very early stage. We are not looking at it at this point in time.
Any plans for fundraising?
As of now, we are very well capitalised and it can take care of the bank’s growth story in the current year. But we will see our Q2 performance – how consistent we are and where we stand – post which we will take a call whether or not to go for a fund raise. If it happens, it could be to the tune of Rs 250 crore to Rs 300 crore on the equity side to test the market. That should happen mostly in the fourth quarter.
Also read: Capital ratios of state-run banks adequate to absorb shocks, boost credit growth, say experts
What is your expectation on rates from the Reserve Bank of India’s monetary policy this week?
We think that the repo rate can be increased by 35 to 50 bps this time.
What will be the impact of this rate increase on bond yields?
Some impact will be visible on bond yields, but it will not be as much as we were expecting earlier. The market has more or less discounted the rate hikes in a staggered manner. We feel that there will be a movement of another 15 to 20 bps but it (10-year bond yield) will be around 7.7 to 7.75 percent going down the line.
How will the rate hikes impact your net interest margins (NIMs)?
We have kept a guidance that our NIMs should be above 2.90 percent, with an upward bias of up to 2.95 percent in the coming quarters.
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!
