Expect Rs 6K-cr loans to be restructured: PNB MD & CEO Mallikarjuna Rao

Public sector lender Punjab National Bank (PNB) expects to restructure loans worth Rs 5,000-Rs 6,000 crore under the Reserve Bank of India’s (RBI’s) restructuring 2.0 window. As the impact of the second wave of the Covid-19 pandemic fades, its Chief Executive S S MALLIKARJUNA RAO, in conversation with Nikunj Ohri and Abhijit Lele, is looking at demand picking up in the second quarter (starting July). While the RBI kept policy rates unchanged to support growth, rates may move north from the second half (H2) of 2021-22 (FY22). Edited excerpts:

Q. The second Covid wave has been intense and is still unfolding. How is it going to impact the first quarter (Q1FY22)?

A. Stress in the second wave is majorly in the retail and micro, small and medium enterprise (MSME) segments, which are small-ticket loans, rather than in the corporate segment. 

In the corporate segment, there was stress in the first wave, and accordingly, the window of restructuring was opened. Banks were expecting more loans, but that wasn't the case in reality.

Under restructuring 1.0, PNB received requests for restructuring Rs 11,000 crore in corporate, retail, and MSME loans. Restructuring worth Rs 4,000 crore has already been done before March. Another Rs 7,000 crore will be completed before June 30.

The second wave has further impacted MSMEs. Therefore, retail collections have been affected. Collections have improved in May, and will be much better in June. We are expecting to restructure loans worth Rs 5,000-6,000 crore under restructuring 2.0.

Q. Does the pandemic warrant a relook at medium-term plans?

A. We expect the impact of Covid 2.0 to not last long, and recede from June-end onwards. 

We are not changing the strategy finalised in October 2020 for the period up to March 2023. 2020-21 was a consolidation year for the bank. We expect FY22 to be a springboard for increase in business, although we have been impacted in Q1.

We are not correcting our estimates for FY22 because of Q1. We will reassess, if required, when we declare the June quarter results. The target is to increase our credit growth in FY22 by 8 per cent, albeit at a conservative level.

Q. What are the bank’s priorities?
 

A. The bank is looking at how sectors, such as hospitality, tourism, and aviation, can be funded. In the medium term, highly impacted sectors will have to be nurtured. 

Our medium term plan will be to focus on the affected sectors and the MSME segment. Also, roads and aviation will soon see demand picking up due to the government's push for infrastructure.

From July onwards, demand will pick up, first at the level of MSMEs in affected sectors for fresh and additional funding, followed by retail and large investment.

Q. While the domestic situation is not conducive, many parts globally are opening up. What does that mean for business?
 

A. Looking at the opportunities in Dubai and Hong Kong, the bank is focusing on engaging exporter customers and providing them support, so that they can realise the export orders they get.

Q. The government recently revised the Emergency Credit Line Guarantee Scheme (ECLGS). Is there a need to further increase allocation under the scheme?
 

A. With the lifting of the threshold to advance loans under ECLGS, there is good opportunity for lending to the highly affected sectors, such as aviation. PNB has sanctioned Rs 12,700 crore under the scheme. The bank is processing proposals for outstanding up to and over Rs 500 crore. There is a lot of headroom still available under the scheme.

Q. The RBI did not change the policy repo rate (at 4 per cent) in a recent review. When will market interests change factoring in inflation?

A. Policy rates are expected to be continued without any change. Every bank has sufficient liquidity. Earlier the RBI gave an inflation guidance of 5 per cent, which has been corrected to 5.1 per cent. The cost of bond yields needs to be under control, so that the cost of government borrowing is not high.

Don’t expect policy rates to change unless inflation gives trouble. Monsoon is expected to be much better, so food inflation is expected to be under control.

I don't expect interest rates to increase in the next two policy statements. Only in H2 is there a possibility for a change in policy rates in an upward trajectory.

Q. PNB Housing Finance is raising equity capital, but the bank is not participating in it. Will the bank act as a passive investor? Will you cut stake further?

A. The bank holds 32.62 per cent in PNB Housing Finance. According to regulatory guidelines, the bank’s shareholding must be below 30 per cent. PNB could not divest its stake earlier since the pricing was not high.

PNB continues to be a promoter and has two directors on the board. PNB will not sell any further stake. Our stake is getting diluted because of infusion of capital by investors.

Q. When will the National Asset Reconstruction Company be functional? How much stake will PNB hold in it?

A. Since public sector banks (PSBs) will hold 51 per cent stake in the bad bank, a majority of PSBs have given their consent to hold up to 10 per cent, which will not require any regulatory approval. PNB will also hold a little less than 10 per cent. 

Currently, PSBs have identified Rs 80,000-85,000 crore worth assets that will be transferred in the first tranche. PNB has identified around Rs 8,000 crore worth of assets to be transferred to the bad bank. The transfer of assets and related issues are expected to be completed by June 30.

According to the proposal, the government will provide guarantee on 85 per cent security receipts that will be issued against the bad debt transferred.

Q. How will the current developments to extradite Mehul Choksi help PNB?

A. The Central Bureau of Investigation (CBI) has been doing a good job in the current case. In the case of Nirav Modi as well, the CBI counsel is providing all documents to the UK courts to get him extradited, and it is in the final stages. With Mehul Choksi, the team has gone there. Since the court has given time to July, they must be coming back. The impact will be more sentimental. 

If a fugitive is extradited and investigated thoroughly, the possibility of getting recovery from more sources, which are not visible to the bank, will be high. There are chances there are assets that are not visible to the bank, and not available in the CBI’s domain.