PNB chief expects a comeback in FY21 with 8-10% credit growth post merger

Merged entity likely to report 8-10% credit growth, better asset quality next fiscal; equity offering by December

Punjab National Bank (PNB), which has lost investor support in the last two years after the Nirav Modi fraud, hopes to see a comeback in FY21 with 8-10 per cent credit growth for the merged entity. It will rationalise branches at 500 locations where PNB and merging banks (Oriental Bank of Commerce and United Bank of India) have overlapping presence. 

“We agree that there has been a hit on the reputation. But it is past; after that the bank has done well,” Ch S S Mallikarjuna Rao (pictured), newly appointed managing director and chief executive officer at PNB, said during the December 2019 quarter (Q3) analyst meeting on Friday. “I would like to assure you that the trend will change by June 2020. The reason is we would like to completely leave aside the legacy by March 2020.”

After recovering over Rs 2,000 crore from Essar Steel resolution, the bank is likely to see 17 National Company Law Tribunal (NCLT) cases worth over Rs 8,700 crore getting resolved in March 2019 quarter. This would lead to around Rs 2,450 crore of recovery and Rs 1,300-1,400 crore provision write back for PNB, according to the management. Among others, two large non-performing asset (NPA) accounts, Bhushan Power and Steel (Rs 3,781 crore outstanding) and Aircel-Dishnet Wireless (Rs 2,863 crore outstanding) likely to get resolved by March.

However, agriculture and MSME (micro, small and medium enterprises) portfolio would continue to see pressure for the next couple of quarters, with expected slippages of Rs 2,000-2,500 crore each in the next two quarters. 

Even in Q3, PNB saw around 50 per cent of its total slippages coming from these two pockets. Its watch-list, or loans with potential to turn bad, stands at Rs 4,900 crore out of which Rs 2,900 crore is corporate exposure (funded and non-funded) and Rs 2,000 crore from retail, agriculture and MSMEs. 

Rao also expects PNB's credit growth to remain moderate in March 2019 quarter at around 4 per cent levels, but sees it improving to 8-10 per cent in FY21. This is for the merged entity. 

Retail growth is pegged at around 20 per cent. In fact, the bank would utilise the benefits of cash reserve ratio exemption, as announced by the Reserve Bank of India, to scale up its retail portfolio during the next six months.

PNB’s board is meeting on February 14, to review work on integration and fine tune plans, with respect to the merger. The bank will finalise plans in April for monetising surplus real estate — building and plots — of merged entity. The entire merger process, including human resource and core banking system integration, would be completed by March 2021. 

For the proposed merged entity, 500 branches have been identified as having overlap. These branches will not be closed down but will be relocated and the merged entity will have 11,500 branches. Rao also said, the merged entity will look at raising equity capital from market in third quarter of next financial year. It could be a qualified institutional placement (QIP) or follow-on public offer (FPO), though the exact timing would be decided later.

• Expects Rs 2,450 crore loan recovery in March quarter

• Agri and MSMEs slippages of up to Rs 5K crore in six months

• Merger process to be completed by March 2021

• Retail credit to grow by 20% in FY21

• Merged entity will have 11,500 branches