Punjab National Bank managing director and chief executive Atul Kumar Goel says some of the bank’s clients have shown interest in the settlement of trade in the rupee. In an interview to Banikinkar Pattanayak, he says MSMEs are likely to cope with rising interest rates without much stress. The IBC, he says, will yield better results with economic activities picking up after disruptions caused by the pandemic. He doesn’t expect any significant hit to the bank’s balance sheet from mark-to-market losses in the remaining quarters of this fiscal.
What is your outlook on net profit and credit growth for the current fiscal vis-à-vis FY22?
The economic growth is back on track after Covid. Indian economy has been resilient in the face of global recessionary concerns. We are expecting recovery in most of the sectors. Stronger economy, budgetary support from the government in the capital-intensive sectors, schemes such as PLI and ECLGS and better consumption demand augur well for the economy. Improving consumer and business confidence and improving domestic demand will support credit demand. We are envisioning a 11-12% rise in credit in FY23 from a year before, primarily from the RAM (retail, agriculture and MSME) segment.
Our operating profit will improve from the last fiscal with increased net interest income and fee-based income, and overall improved recovery from non-performing assets (NPAs). However, net profits will be subject to requirements of the NPA provisioning as we plan to strengthen our provision coverage ratio this year.
Do you expect further mark-to-market losses in Q2 and Q3 and how will it impact your balance sheet?
Fixed income securities markets have been moving in tandem with inflation and the expected RBI stance to hike key rates. Though most of the expected future rate hikes have been priced in, there will still be some upward bias. It is expected that yields may remain volatile in coming months. Statutory liquidity ratio (available for sale) portfolio of the bank is being managed with shorter durations that are relatively less sensitive to rate hikes. Our modified duration in June was at 2.14 and it is expected to remain at around 2.
Given the mostly priced-in rate hikes and range-bound YTM (yield-to-maturity) expectations, not much impact is expected on profitability and balance sheet over and above what we have already factored in our June quarterly results.
Is a delay in resolution under the Insolvency and Bankruptcy Code (IBC) a concern for you?
The IBC has been a game changer for financial creditors, particularly in bringing down NPAs. It has evolved significantly through various amendments based on the experience of stakeholders. It is one of the few laws where regular need-based amendments have been introduced. The insolvency law committee has submitted that delays in insolvency resolution are caused due to a high number of objections to the proposed resolution plan or due to a high degree of pendency of cases.
We understand that the issues are under consideration with concerned authorities. The process will be further strengthened to reduce the delay. The economic slowdown also had an impact on timely resolution. With the economy back on track, we expect the IBC to achieve its requisite objectives.
Have you started tapping the RBI’s guidelines last month on international trade settlement in the rupee? Have your clients shown interest in this?
RBI’s guidelines on international trade settlement in the rupee are aimed at promoting global trade, emphasise exports and support the increasing interest of global trading community in the rupee. It will ease pressure on rupee and also facilitate internationalisation of the Indian rupee. It puts an additional arrangement for invoicing, payment and settlement of exports/imports in the rupee. We are exploring with some of the banks for opening of special rupee vostro accounts. Some of our exporter/importer clients have also approached us and shown interest towards the trade settlement in the rupee.
Are you planning to hold a credit outreach programme ahead of or during the festival season?
Currently, we are running ‘MSME Amrit Mahotsav Campaign’ with the target to garner fresh MSME business. To accelerate the retail credit growth, we are running a promotional offer – ‘PNB Monsoon Bonanza Offer 2022’. The bank has also waived legal and valuation charges on takeover of home loans to boost this portfolio.
Our rate of interest and other charges are very competitive. We have attractive schemes in retail, MSME and agriculture sectors for our targeted segments such as PNB Pride Housing loans for government employees, PNB Sampatti scheme for MSME sectors, etc. The festival season has always been associated with sentiments and it is during this period that economic growth receives support from robust consumption, thus encouraging firms to expand capacity and boost investment and employment.
How have been PNB’s advances to the MSME sector? Do you see any stress building up in this segment, especially in a rising interest rate scenario?
MSMEs have been a bedrock for economic revival and one of the building blocks for an Atmanirbhar Bharat. Initiatives of the government and the RBI had cushioned small business from the impact of Covid. Nearly 16.23% of our gross domestic advances are to the MSME sector. We are envisaging a double-digit growth in MSME advances in FY23 through various internal and government-run schemes.
As regards the stress building up due to the rising interest rate scenario, I think they will be able to weather it. They will be able to absorb the costs, provided credit is available to them regularly and on time.
What is the status of your loan transfer to NARCL and your recovery through IBC?
We are expecting a total recovery of Rs 6,500 crore through the IBC in FY23, out of which Rs 693 crore has been recovered in the June quarter. NARCL is expected to become operational during the September quarter. Due diligence of accounts in which we are the leading bank has been completed by the NARCL. Preliminary information memorandum of other selected accounts has been submitted by us to the NARCL and we expect to receive binding bid from it in ongoing quarter.