Punjab National Bank is willing to sell bad loans to National Asset Reconstruction Co(NARCL), especially if it can get better recoveries through this route. The bank’s MD & CEO Atul Kumar Goel tells Ajay Ramanathan that while bank’s net interest margin will see a compression this financial year as deposits get re-priced, net interest income will be stable. Excerpts:
Q. Your delinquencies are relatively higher in the MSME segment. What are you doing to improve asset quality?
A. This a legacy issue. We have taken a lot of steps to improve underwriting, and have made the process more centralised. From July 1 2020-September 30, 2023, loans worth Rs 65,507 crore has been sanctioned, and Rs 59,995 crore has been disbursed in the MSME segment. Of the outstanding Rs 41,117 crore, hardly Rs 882 crore are non-performing assets, which amounts to a mere 1.47%. So, the higher NPAs are a result of a legacy issue when we did not have the sufficient tools.
If the opportunity arises, we will definitely engage asset reconstruction companies. But we will sell under the 100% cash sale and not the 15:85 structure.
Q. Is MSME a key focus area for the bank going ahead? What is your growth target for this year?
A. We are trying our level best because this is a focus area. Government is also taking a lot of initiative in the MSME industry. We are doing direct lending to MSMEs. In some cases, we are also entering into co-lending arrangements with non-banking financial companies (NBFC). We are also giving loan to NBFCs for onward lending to MSMEs.
Q. What are your growth projections for the retail segment?
A. There are two types of growth. Core growth and growth on account of inter-bank participation certificates (IBPC) and purchase of pooled assets. Our core retail is expected to grow at 20% year-on-year(y-o-y) in the current financial year.
Q. You have said that your cost of funds will rise going ahead. How will this impact margins?
A. There are two things to be considered here. My net interest margin is 3.11%. We are giving a guidance of 2.9-3% because some of the deposits are yet to be re-priced and so there will be pressure on the net interest margins. But in terms of absolute numbers, there should not be any fall in the net interest income. There are some transactions where we are getting only 50-75 basis points so there will be a compression in the margins. But, there should not be any fall in absolute numbers.
Q. We hear that many banks have for various reasons, been reluctant to sell their assets to NARCL. What are your views on this?
A. As far as Punjab National Bank is concerned, we are not reluctant. As on date, 43 accounts worth Rs 17,152 crore are under discussion. Out of which, around 15 accounts worth Rs 8,534 crore have been dropped due to various reasons like resolution in the National Company Law Tribunal and one-time settlement. Of the remaining, three accounts worth Rs 755 crore have been resolved. Here, we have recovered Rs 110 crore. We have received a bid for seven accounts worth more that Rs 3,000 crore. The remaining 18 accounts worth Rs 4,860 crore are under discussion. So we are not reluctant. If we can get better recoveries through NARCL, we are very open to sell assets.