If consolidation comes, we will go for geographical synergies: PNB MD & CEO

Interview with Sunil Mehta, MD & CEO, Punjab National Bank

At his chamber in the new office premises at Dwarka in southwest Delhi, Sunil Mehta, managing director and chief executive officer of government-owned Punjab National Bank, does not display any sign of tension over the mess that the banking sector is in. He speaks to Somesh Jha & Indivjal Dhasmana on future strategies and what they’ve done to rationalise operations. Edited excerpts:

How do you see your treasury income in the fourth quarter (January-March), after the government announced a plan to borrow another Rs 50,000 crore? 

In the fourth quarter, there will be some pressure on the treasury income. Perhaps not as much as in the past because treasury income is directly related to the interest rate scenario.

How much exposure do you have in the Reserve Bank of India’s (RBI’s) second list of NPAs (non-performing assets)?

That list has 28 cases, of which our bank is participating in 20. For these, the exposure is Rs 6,500 crore and incremental provisioning requirement is Rs 800 crore. Of this, I had already provided Rs 75 crore till September; that leaves Rs 725 crore. RBI gave a mandate that if you are able to resolve these cases, then it’s okay. Else, you will have to go to NCLT (National Company Law Tribunal). Even in the worst case scenario when nothing is resolved and let’s say all will go to NCLT, my additional provisioning is Rs 725 crore, which I can very well take care.

Are you looking to bilaterally settle cases in the second list?

We might be able to settle a few of the cases bilaterally, perhaps only four-five. We are participants in 20 cases and not the lead banker in any of these.

In the first list of 12 cases (referred by banks on RBI order to NCLT for insolvency proceedings), how much was your exposure and how are you providing for these accounts?

Of those 12 cases, we had exposure in nine, to the tune of Rs 11,000 crore. For this Rs 11,000 crore, we were required to make incremental provisioning of Rs 1,080 crore in the current financial year. Of this, I had provided for Rs 830 crore till September; we front-loaded the provisioning. This means I have only Rs 250 crore left, which we can very comfortably do.

Lenders have taken huge haircuts (arrears write-off) in some of the cases resolved through NCLT. How much haircut are you willing to take?

Now, the question of willingness is not there. It will happen as per the process, whatsoever the decision given. The right estimate is difficult because each is a unique case. However, by and large, the general assessment is that of our nine cases in the first list, most of the money — Rs 9,000 crore — is locked in five steel (companies’) cases. All these five steel assets are already under advanced stages of Expressions of Interest (EoIs) and bidding; a good number of EoIs and bidding have been received.

That sector is looking for a very good upside because of the government’s infrastructure push. Also, the government has imposed minimum import prices and anti-dumping duties. So, the steel sector looks bright for the future. I hope we will be able get better resolution and might not have to take huge cuts.

How will the recent amendments to the Insolvency and Bankruptcy Code, of tightening the rules on promoters bidding for their companies, impact the process?

There will be challenges in valuation but it will give a good message to those who do not comply with financial discipline or who default. In the long term, this will give good signals to corporates, that if you do not perform, if you do not meet your financial commitments, you will not be able to retain your assets.

What is the plan for stake reduction in UTI Mutual Fund?

We are not the sole investors. There are four others, too. I think a meeting of the investors will take place in April and a call will be taken at that time. We might plan to go for listing (of the shares).

What about the larger issue of bank merger?

Maybe activities are happening but we are still not on board. So far, we were not interested, as we wanted to (first) consolidate ourselves.

On consolidation, if you were to merge, what kind of synergies will you look at?

PNB is the second largest, after State Bank of India. I don’t think we will be looking for any merger. But, if the government says (you must) or comes out with a road map, we will go for geographical synergies. In the south, we have little presence and so, we might opt for it.

Depending only on a nudge or advice from the government?

They are not going to give us advice. They are going to give us options.

How soon may we expect consolidation?

I can’t say. We only listen (to what the government is planning) from the media. There is nothing (officially) on the cards. 

How much are you expecting out of the (government’s) recapitalisation plan?

We have not got any number. We are not dependent on the government for capital. We have proved it. My capital adequacy ratio, CET-1, is above 9. The requirement is 8. 

So, you don’t require recap bonds?

I don’t want recap bonds for the existing business. Maybe if I want to go for future business, I might require it.  We are adequately capitalised for 2018-19, if we have to grow at the present rate.

But, are you looking at a particular contour of recap bonds?

That’s debatable. A lot of discussion is on but nothing has come out. 

What about selling stake in non-core assets?

Whatever we committed, we have done better than that. We have already sold 5.9% stake in PNB Housing Finance, getting Rs 1,321 crore from it. We have also exited from PNB Principal, where we’re going to get Rs 125 crore. So, Rs 1,450 crore we have already disinvested and we’ll be getting that money. Of which, Rs 1,325 crore we have already received; the rest we will be receiving in the next few weeks.

Any other asset sale this financial year?

We are thinking of putting some of the fixed assets for sale. We have a lot of these and a lot of properties. Some of the properties we are not using might be put on sale.

Any estimates?

It is work in progress. Hopefully, we’d be raising another Rs 500 crore.

What about your British subsidiary, PNB International?

We have been able to convert it into a profit-making centre. We have an opportunity to disinvest in it but, right now, it is only a turnaround. We would first like to stabilise it and only then unlock the value. We will then get better value.

Your plans for branch rationalisation?

That exercise is on. We have given notices to all loss making branches that if they make turn around within a year, okay; else, we will look for options on their mergers. We are working on roughly 300 branches and not all of these are loss making. Some are marginally profitable. So, we are working on all those plans; if they are able to turn around, it’s okay. Otherwise, we will have to close (these). All are domestic. We have a total of 7,000 branches.

What about branches abroad?

We have already decided to close down two of our offices in Australia and China, in Sydney and Beijing, respectively.

Beside branches, what rationalisation are you looking at, say, in ATMs?

We have reduced to 900 ATMs and relocated many of these. Ultimately, profit is now going to be in the forefront. Whichever vertical, service or product is not contributing to profitability, we are analysing and redefining.

Even when your NPAs are going down, your net bad debts are still above eight% (of the total). When could you see sub-5%?

That will take some time. It will go down gradually, quarter on quarter. The previous quater, both gross and net NPAs were lower than in the corresponding quarter last year.

You have set up a ‘war room’ to recover NPAs. What is the preferred mode of recovery — NCLT, S4A or war room?

The most preferred route in individual cases is my own war room, as they are the fastest recovery team in place. But, where there are group – big corporate – accounts, the NCLT will be a better option. S4A is also a good scheme. It gives two basic advantages. One is the 50% that is sustainable is already my standard asset and so I don’t have to make any provision for it. The second part is whatsoever is converted into assets, if the company goes bust, then there is upside available with it.

When do you see revival of private investment?

First, government investment will take place. That will create automatically demand for private investment. Green shoots are visible and I am optimistic about revival in the next financial year.

You were heading a Manthan (the periodic brainstorming between state-owned banks and others on solutions) group on credit advancement. What are the ideas you suggested to other lenders for boosting credit?

We have given our recommendations. It will be premature to tell you all but I can highlight a few major suggestions. Manthan was concentrated around three themes. One was learnings from the past. We said the mistakes by banks should not be repeated. That was one part of our assessment and analysis, on do’s and don’ts from past learnings. 

Then, how to propel future growth. The ideas (here) were digitisation of processes, increasing the turnaround time…ultimately, that becomes the differentiator. Turnaround time is a differentiator between private and public sector players. So, these are areas which have to be targeted. Then, creating certain utilities – information depositories, utilities for monitoring large-scale assets…these are all part of the recommendations. The government is working on all of it. 

PNB raises FD rates

PNB has raised interest rates on fixed deposits of select maturities by up to 1.25 per cent effective Monday. Fixed deposit of maturity of 7-29 days will now earn 5.25 per cent from existing four per cent, while 30-45 days interest rate will go up by 0.75 per cent to 5.25 per cent. However, interest rate on term deposit with maturity of 91-179 days will be higher by 0.25 per cent to 6.25 per cent.  PTI