'Loan restructuring is like a chakravyuha'
Rising borrowing costs, strained cash flow and delays in execution of projects have prompted many Indian companies to restructure their existing debts with banks. Punjab National Bank (PNB), the country’s second-largest lender, has restructured nearly Rs 20,000 crore of loans in the last three and a half years. In an interview with Somasroy Chakraborty and T E Narasimhan, Chairman and Managing Director, K R Kamath, says a debt recast is needed to aid borrowers in servicing their loans. Edited excerpts:
Are you worried about the quality of loans that has been restructured?
Restructuring is like a chakravyuha, everyone knows how to get in, but nobody knows how to come out of it. But it is not a taboo. The banker is like a doctor. If we see symptoms of stress, the first thing we try is to treat on the basis of those symptoms. We can’t worry about what others would think --- whether the media would like my actions, or whether analysts would support it. If I delay my action, it may be too late for the patient (borrower) to recover.
Do you foresee a situation in which slippages in your restructured portfolio may deteriorate the bank’s asset quality and erode earnings?
Asset quality is based on the ability of borrowers to service loans. We have two options: Either we worry and do nothing, or we can find a solution. Restructuring means adjusting the repayment schedule to change the cash flow of customers because of circumstances beyond their control. The Reserve Bank of India (RBI) has appointed a committee to review the existing guidelines on loan restructuring, and suggest accounting treatment for them. It would ensure everything rests in peace.
Loan growth is slowing because of high interest rates. When do you expect it to recover?
The problem is we always take a very short-term view on every issue. Today, we are talking about 18-20 per cent growth in credit. In the last three decades, or since the time I have been a banker, 18 per cent has been a thumb rule for growth. This is not small. In the last few years, we have seen loan growth of 25-30 per cent. So, since we have seen a larger number, the moment it shrunk by a small extent, we panic. I think even in the current environment, 18 per cent growth in credit is possible.
Would you need additional capital to finance growth?
PNB is one bank that is consistently giving equity return of 20 per cent. We can fund credit growth on our own. In case asset growth is higher than 20 per cent and if there are larger provisioning needs, we may need capital. Otherwise, we feel we can fund our growth through profit plough-back. Our capital adequacy ratio is 12.23 per cent.
What is your outlook on net interest margin?
We have given guidance that our net interest would be 3.5 per cent. We are holding on to that. Our net interest margin was 3.95 per cent in the second quarter.
How do you plan to grow your foreign business?
We have completed the acquisition of Kazakhstan’s Dana Bank and started operations through four branches there. Currently, around three-four per cent of our business is from international operations. Our growth rate in India continues to remain strong. So, increasing the share of international business would be difficult. However, we would try to grow our foreign operations at the same pace as that of our domestic business.
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