Punjab National Bank (PNB), the country's second-largest lender, saw total business of Rs 5.55 lakh crore at the close of financial year 2010-11. The bank feels a further rate hike may put asset quality under pressure. In an interview with Manojit Saha, Chairman and Managing Director K R Kamath says a reversal in the rate cycle is possible in the the third quarter. Edited excerpts:
Interest rates have hardened significantly in the last six months. There are concerns it may rise further, since inflation continues to stay stubbornly high. Would borrowers find it difficult to service the loans if rates rise further? As of now, there is no problem. However, if banks continue to pass on rate hikes to the borrower, that may lead to problems. In addition, credit growth may come down if interest rates continue to rise. Usually, the first quarter of a financial year is a slack season, and doesn't see much demand for loans. However, I think from the third quarter of the financial year, we may start seeing a reversal in interest rates. This is also the time when one sees credit pick-up.
What kind of credit growth would PNB aim for in the current financial year? I do not see any reason for a decent credit growth. We have not yet taken a view on growth numbers and will only decide after considering the Reserve Bank of India’s (RBI) projections, which will be announced in the annual review of monetary policy in May.
The share of low-cost deposits in PNB’s total deposits, at 39 per cent, is quite healthy. Do you think this level can be maintained? We are conscious of the fact that maintaining such a high current and savings account (Casa) deposit will be a challenge. We will try to hold on to that number and will try to add more accounts to maintain a healthy Casa level.
A sharp increase in deposit rates was seen in the last six months.
Will this affect your net interest margins? Margins will come under pressure. There is a resistance from borrowers to further increases in the lending rate.
PNB is seen as a bank with a strong foothold in the Indo-Gangetic region. However, there is a perception that the bank does not enjoy a strong presence in the South. That is not entirely true. We are present in the southern states. But comparably, our presence in north India is stronger. While we have 500 branches in Punjab, we have only 100 branches in Kerala.
We have decided to open at least one branch in all the district headquarters where awe are not currently present, though the figure is not very high. We will then identify potential locations for further expansion.
The bank had floated an expression of interest (EoI), inviting partners to form a joint venture in the life insurance business. How far has this venture progressed? In response to the EoI, we received 41 proposals. One company was allowed to submit multiple proposals. The requests for proposals (RFPs) were issued to 10 shortlisted candidates and the last date for submitting the RFP was 29 March. The proposals are now being evaluated and we plan to decide the partner by the end of the current quarter.
In terms of business growth, where do you see the bank in the medium term? We have become the second-largest bank in the country in terms of total business since September 2009. It will be our endeavour to hold on to the position.
Going ahead, what challenges would the bank face? A key challenge is in the human resources front, since a lot of employees would retire over the next few years. Another challenge would be to meet the growing requirements and aspirations of our customers.