With green shoots in private capex and margin recovery after the rate cycle bottoming out, Ashok Chandra, MD & CEO, Punjab National Bank, tells Mahesh Nayak that he anticipates a 10-15 bps net interest margin (NIM) improvement by the fourth quarter. He sees GST cuts driving retail and MSME lending and expects a minimal impact from the expected credit loss (ECL) norms. Excerpts:
What is your view of the rising foreign acquisition in the banking sector?
The increasing foreign investment and consolidation like RBL Bank & YES Bank in the banking sector signify the resilience and robustness of the Indian economy and financial system. With the government allowing up to 74% FDI, the bank expects more foreign investors to show interest in the Indian market. Regarding the consolidation of PSU banks, so far there is nothing on cards and we haven’t had any dialogue from the government.
What enabled the write-back in provisions this quarter?
For the past 6-7 quarters, PNB’s recoveries have significantly outpaced slippages. This quarter saw a strong recovery of RS 3,900 crore, with Rs 2,700 crore coming from gross non-performing assets (NPAs), against slippages of only Rs 1,900 crore. Technical write-offs totalled Rs 830 crore. The bank’s Provision Coverage Ratio rose to 96.91%, with over 90% for gross NPAs and overall 97%. Net NPAs declined to Rs 4,026 crore from Rs 4,132 crore last quarter. Despite Rs 600 crore in fresh provisions, higher write-backs created a negative provision element, which the bank strategically used to enhance profitability and capital, rather than increasing already high provisions. We expect credit costs to remain very low (full-year guidance below 0.5%) due to strong PCR, effective NPA management, and robust recovery.
What has been the reason for a decline in net interest income (NII) and NIM?
NII saw a negligible drop of Rs 90 crore from Q1 to Q2, primarily due to a 100 basis point repo rate cut, the benefit of which was passed on to customers as 49% of our assets are linked to EBLR. We expect NIMs to improve, anticipating a 5-7 basis point rise in Q3 and a 10-15 bps rise in Q4, as deposit repricing at lower rates takes full effect along with the reduced rates on term and savings deposits.
What’s driving credit growth for PNB? Are you seeing any green shoots in corporate capex?
PNB’s RAM portfolio showed strong growth with retail loans growing at 18.1%, Vehicle loans at 30% despite limited GST impact, housing at 13%, agriculture at 13%, and MSME at 18.6%. Further 1-2% growth is expected in RAM due to GST cuts. Overall credit growth is 10.1%, partly due to slower corporate loan book growth in earlier quarters. While corporate loans grew 7.9% this quarter, we are seeing a pick-up. Our sanctioned corporate loan book stands at Rs 1.78 lakh crore (up from Rs 1.36 lakh crore), with 20-45% allocated to project financing. This indicates a picking up of corporate demand, with PNB surpassing its FY24-25 sanctions within six months. While project financing disbursements take 1-2 years, we are confident of achieving its 11-12% credit growth guidance for the financial year and anticipates a very strong corporate loan book in the next 1-2 years.
What is your view on the expected credit loss (ECL) norms?
We at PNB are well-prepared. Currently stage 1 provisions are already met, while stage 3 NPAs are largely covered by PNB’s strong 97% PCR. The main impact is in stage 2. Rough calculations suggest an additional `9,000 crore provision needed, impacting CRAR by 85 bps. However, spread over five years, the annual impact is 15-16 bps. Given PNB’s strong profitability (expected to be over Rs 15,000 crore profit this year), Rs 10,000-12,000 crore will be ploughed back into capital, making the bank well-positioned to absorb the ECL impact without major strain.
How is PNB responding to RBI allowing acquisition financing for Indian banks?
We are developing a policy and risk mitigation framework, prioritising deals that foster national interest, employment, and growth. The $120-billion M&A market provides a significant opportunity and we will leverage our global presence and build expertise in this area.
What is the strategy adopted by PNB to grow its subsidiaries?
PNB sold a 10% stake in Canara Insurance (from 23% to 13%) to comply with regulations (cannot be a promoter for two life insurers, already having PNB MetLife). The generated `957 crore will reflect in our Q3 quarterly income. All five of PNB’s domestic and foreign subsidiaries (PNB Cards & Services, PNB ISL, PNB Gilts, PNB International (London), Druk PNB Bank (Bhutan) are currently profitable and contributing positively, with plans to double their collective contribution within 1.5 years. Associates (PNB MetLife, PNB Housing, Everest Bank Nepal) and all eight RRBs are also posting profits.