State-run Punjab National Bank (PNB) expects fresh slippages of an estimated Rs 5,000 crore in the fourth quarter, said S S Mallikarjuna Rao, Managing Director and Chief Executive Officer of the bank, in an exclusive interview with Moneycontrol.
This would include an estimated Rs 1,800 crore slippages on account of the COVID-19 impact on industries, Rao said. That apart, post the amalgamation of United Bank of India and Oriental Bank of Commerce, PNB expects about Rs 2,500 crore additional slippages to come from both these entities. According to Rao, about 75 percent of the fresh slippages are likely to come from the SME (small and medium enterprises) and retail portfolios in the Q4. The scenario on loan growth and future asset quality depends on how long the COVID-19 impact will be felt on the economy, Rao said.
Q: Starting April 1, PNB has merged United Bank and Oriental Bank of Commerce with itself. How long the integration process will take?
A: That process is on course. If you look at the pre-amalgamation activity, it was very large. This included synchronizing the technology processes, harmonizing the products, services and also the interest rates.
Q: There are fears of job losses in overlapping roles across the merged banks
A: Retrenchments will never happen. We require all employees. Secondly, even if there is an overlapping of roles and responsibilities, those employees will be relocated across branches. Considering the large geography in which the bank (the merged entity) will operate, we need people everywhere. The overlapping will likely happen in controlling offices. But these people can be relocated.
Q: Is it true that you have given an option for employees of amalgamated entities to continue or quit?
A: As per the amalgamation document, all the employees of merged banks are employees of PNB as on April 1. However, we have opened a window. That is, if somebody doesn’t wish to continue he/she can opt for that. My understanding, so far, is no one wishes to leave the bank. But we will see.
Q: At a larger level, is there enough autonomy for PSBs to operate? Do you feel that your hands are tied because of government ownership?
A: Definitely we have enough operational autonomy. The government’s requirement is totally for the average citizens of the country. There is no pressure with respect to mid-corporate or large-corporate segments. Also, we have our own due diligence processes that are sound.
Q: PNB has gone through a painful phase post the Nirav Modi scam surfaced. Bank's image took a major hit
A: There are two things here. One is the impact on the balance sheet (on account of the scam), and the other is getting the recoveries in the account. Impact in the balance sheet has been addressed fully because we have provided (for the losses) fully. Recoveries, as you know, is a long-drawn process as the cases are running both in India and England.
Q: How much money have you recovered so far in the Nirav Modi scam?
A: So far, nothing. Only thing is that assets worth Rs 1,000 crore has been confiscated by the CBI (Central Bureau of Investigation) recently. They have given permission to us to apply to the courts for the sale of these properties. We have already done that. But there are some legal hurdles before we go for the auction.
Q: What is the money at stake?
A: It is about Rs 13,000-14,000 crores, if you consider both Nirav Modi and Mehul Choksi cases.
Q: Is there a time frame in your mind for recovery?
A: Time frame will depend upon how soon we are able to identify the assets that can be auctioned. If that happens within the country, where you have visibility, you can go through the legal process to monetize those assets. But, with respect to those outside the country, you have to consider foreign treaties and concerned laws. It is very difficult for me to make an estimate on that.
Q: In the current economic scenario, many banks are expecting a spurt in NPAs.
A: If you look at the overall industry in the last one and half year or so, many MSMEs (Micro, small and medium enterprises) were paying in the nick of time. This means, these accounts were in either SMA1 or SMA 2 (Special mention accounts or accounts where payments are overdue). I’m not saying in all cases but some of the cases. Now, because of the COVID-19 effect, some payments that were supposed to come by 29 February, have not come. As a result, these accounts may turn NPAs. But because of the deferral of demand for interest for three months, there won’t be additions for now . We hope to upgrade these accounts as recovery happens.
Q: How much slippages you expect in the fourth quarter?
A: Originally, if you look at our expectation prior to the amalgamation, of the Rs 19,000 crore slippages expected for the full fiscal year, about Rs 15,800 crore has happened till December. So, in the fourth quarter we expect around Rs 3,200 crore. An additional Rs 1,800 crore could come on account of COVID-19 impact on industries. So together, our estimate is that about Rs 5,000 crore fresh slippages could come for PNB in the fourth quarter. But this is only an estimate for Jan-March quarter. The final figure could differ.
Q: Out of this Rs 5,000 crore, which will be the major source of slippages?
A: I expect around 75 percent of this to come from SME and retail.
Q: Any large corporate accounts likely to turn NPAs in Q4?
A: No fresh additions likely.
Q: What is the SMA-2 portion of your loan books now?
A: It was around Rs 10,000 crore till 29, February.
Q: What is the loan growth you are looking at?
A: For 2019-20, the loan growth is going to be largely flat. For FY21, I expect about 8 percent. That also depends on how the COVID-19 impact plays out.
Q: Is there any estimates on fresh slippages in Q4 from the two amalgamated banks?
A: It could be Rs 2,000 to Rs 2500 crore. But this is only a rough estimate. I need to look into the details.
Q: What is going to be the next big pain or Indian banks?
A: Sector wise, SME and retail will continue to have a problem for some more time. We have to incentivise them to grow. I’m also expecting some stress in the large corporates in the telecom segment.
Q: Is PNB deferring the loan EMIs automatically under the RBI moratorium scheme?
A: Yes. In our case, this will happen automatically. Messages have been sent to all borrowers.
Q: Will there be any impact on ALM (asset-liability management) of PNB on account of this moratorium plan?
A: As a public sector bank, I never have a problem with liquidity. At this point, we have sufficient liquidity of Rs 10,000 crore. The recent RBI measures on liquidity gives us enough room to draw liquidity. There is no concern on ALM.
Q: There is a report that SBI will likely continue the moratorium beyond what is planned now. Will you follow if that happens?
A: If RBI permits with the permission to restructure term loans, like it has done now, we could consider that.
Q: There is a 21-day lock-down nationwide which could possibly get extended further. What kind of impact is likely on cash flows of companies?
A: Our expectation is that everything should get settled by May 31. After April 14, I think the cases of virus infections will come down, although I do not have a scientific reason to tell you. The normalcy in operations should take another one month and beginning July 1, the uptick will happen.