Bank merger: Will approach markets for capital in Q3, says Mallikarjuna Rao

The ecosystem is favourable to us because of the developments over the last two months. Therefore, we will have to work in converting that confidence into business relationships, says Rao

Emphasising that the merger of Oriental Bank of Commerce and United Bank of India with Punjab National Bank could not have come at a better time, S S Mallikarjuna Rao, MD and CEO of PNB, says the bank plans to raise capital in July, in an interview to Hamsini Karthik. Edited excerpts:

Will public sector banks be able to consolidate their position in the market after recent events in banking?

Absolutely. If you look at the entire ecosystem, there is high level of confidence in public sector banks, except in one parameter — the stock market. Other than that, everybody has high confidence in public sector banks.

The markets haven’t made much of a difference to us, given our capital structure in which the government is a substantial shareholder. I’m not belittling the contribution of smaller investors, but stock markets need to look at the reality in assessing the public sector share position.

The ecosystem is favourable to us because of the developments over the last two months. Therefore, we will have to work in converting that confidence into business relationships.

After the merger, do you believe you are in a better position to tap the capital markets, instead of capital infusion by the government?

In the December quarter, we will tap the public for a qualified institutional placements (QIP) or a follow-on public offer (FPO).

When will you start planning for this?

After the combined entity declares its first quarterly results for FY21. So, planning should start in July. There are two dimensions to capital — one is having regulatory capital and the other growth capital.

In December, our regulatory capital requirement stood at over 14 per cent (on a stand-alone basis), and we are sufficiently capitalised. Even Oriental Bank of Commerce and United Bank of India were sufficiently capitalised.

For the March quarter, three different balance sheets will be declared. We will then combine them and see our status. The Reserve Bank of India has also deferred the last instalment of implementation of capital conservation buffer, to September. But I don’t think there will be any breach in capital. After the June quarter results, we will plan on how to approach the market for growth capital.

What about improvement in credit standards?

Creating an industry-wise skill set is typically difficult for a smaller organisation, compared to a bigger one. Capacity building within the organisation — specific to industries and various segments — is much more convenient in a bigger bank.

To that extent, after the amalgamation is completed, I believe the merged entity will have an opportunity to create capacity building, to set up a credit underwriting and risk governance framework in a more appropriate manner.