Lead bank must play key role for quick decisions, says PNB MD Sunil Mehta

Punjab National Bank MD & CEO Sunil Mehta says lending by bank continues unaffected despite the adverse situation caused by the Nirav Modi and Mehul Choksi-related fraud. He tells Somesh Jha and Indivjal Dhasmana that five-pronged strategy –SASHAKT—to recover non-performing assets will de-clog NCLT. Edited excerpt:
 
Do you think setting up an asset management company (AMC) is a viable alternative to the Insolvency and Bankruptcy Code (IBC) route, especially looking at the decent recovery you have had in the Bhushan Steel case?
 
Hats off to IBC. It is one of the best decisions that the government has taken. This has created a lot of seriousness in the corporate sector - if they do not perform and meet out their financial commitments, they may lose  their assets. This message is loud and clear. But you can't shift every burden on the National Company Law Tribunal (NCLT). Bankers will have to start making effort to resolve the assets before going to NCLT. If we start referring every issue to NCLT, it will also get clogged. So, that's why the government has come out with the idea of AMCs. This does not exclude NCLT but is something that will happen before it. Once the time limit of 180 days is over, then you have to go to NCLT. There is no choice.
 
Will your bank set up AMCs or Asset Investment Funds?
 
We have not taken any decision on it so far. But whatsoever decision is taken at the industry level, we will be a part of it.
 
Has PNB’s board approved the model inter-creditor agreement?
 
We will hold a board meeting soon to approve it.
 
There is criticism that this arrangement is biased towards the lead banker…
 
If you want to speed up the decision-taking process, somebody will have to dominate. Otherwise, decisions will not take place. If everyone takes his or her own decision, there will be no uniformity. And anyway, decision will only be taken with a 66 per cent majority in a consortium. It’s a democratic process.

Wouldn’t there be a conflict of interest in setting up AMCs or AIFs?
 
Conflict of interest is when you offer somebody an asset at a discount. The mechanism worked out here is it will be offered for sale to all. Suppose the consortium decides to sell the assets. Resolution applications will be invited from all the ARCs, including the one AMC. Only advantage in this case will be that one AMC will be backing the entire transaction and will say - if no one is buying I will buy it at 50 per cent. So, there will be a last resort buyer available. That will provide us a better valuation.
 
There is a sense that credit decisions are getting impacted due to a series of cases filed by investigative agencies against top bankers, with the arrest of the Bank of Maharashtra chief being a case in point. What is your take?
 
I can't say about others. My yearly domestic credit growth in June, despite all the negativities in the market, was 11 per cent. Even by the end of March, my yearly domestic market growth was 9.8 per cent. The credit growth has not been impacted despite the negativities in the market. We are on track.
 
But the Indian Banks’ Association (IBA) issued a statement condemning the arrest of Bank of Maharashtra managing director and chief executive officer…
 
There was outreach of vigilance mechanism which we protested being a part of IBA. That is true. But we are not shying away from taking decisions, even as we have protested it.
 
Will the government’s decision to put capital of Rs 28 billion be utilised to pay interest on perpetual bonds?
 
No, that sum is very low – around Rs 1.3 billion. That is not an issue. This capital will help us  ensure that we do not breach any regulatory requirement, in case we register a loss in this quarter.
 
But PNB had demanded an additional capital of Rs 80 billion from the government this year…
 
Actually, the government has not completed this exercise. It is in the process of finalising it and the capital allocation under the recapitalisation programme is yet to happen.
 
What will the capital infusion be used for? To prevent PNB from falling into prompt corrective action (PCA)?
 
No. Not at all. We are not falling into PCA.
 
But if capital adequacy is not maintained...
 
The government is giving the money to support credit growth. If the government does not infuse (capital), we will not be able to expand our credit portfolio and the government wants us to do that.