 "Ashok Chandra, MD & CEO, Punjab National Bank")
Ashok Chandra, managing director and chief executive officer, Punjab National Bank, tells Manojit Saha the capital adequacy ratio of the lender will improve by 47 basis points, now that the Reserve Bank of India has restored the norms on risk weighting for loans to non-banking financial companies and microfinance institutions. Edited excerpts:
The regulator has restored the risk weightings for bank loans to non-banking financial companies (NBFCs) and microfinance institutions (MFIs). What will be the impact of this on your bank’s capital adequacy ratio?
We have calculated the impact. The capital adequacy ratio will improve by 47 basis points. The impact on common equity Tier-I capital will be 30-31 basis points. Our ratio was 15.41 per cent at the end of December. This does not factor in the net profits for nine months. After March, we will plough back the profits after dividend, etc and we are expecting the ratio to improve to above 16 per cent, maybe 16.25 per cent or 16.5 per cent.
After the restoration of risk weightings, will your bank increase loans to NBFCs?
The bank has taken a lot of exposure to NBFCs. As on December 31, it was ₹1.6 trillion. And we would for now like to keep it in the same region, ₹1.5-1.6 trillion.
Will you increase exposure to MFIs?
We don’t have much exposure to them. We don't see much attraction happening in that sector. This is because MFIs are under pressure.
What is the projection for growth in loans and deposits for FY25?
Our loan growth is healthy. It was 15 per cent year-on-year till December. I am expecting 13-14 per cent growth in FY25. We have a strong pipeline of sanctions, which is ₹1.5 trillion. Some disbursements are expected in the fourth quarter.
We are expecting 12-13 per cent growth in deposits, and are coming up with schemes for mobilising deposits in current and savings accounts (Casa), which is a challenge. There was a drop in the Casa market share, which we want to regain.
We will take initiatives on Casa next financial year.
On assets, what will be your priorities?
We have 10,200 branches, for which I see a lot of potential. The core RAM (retail, agriculture, and micro, small and medium enterprises) is around 52 per cent, and we aim to take it to 56 per cent by the end of FY26.
There is a challenge on our yield on advances, which is coming down. If we improve yields by 10 basis points, that will add ₹1,000 crore to revenue. We are taking initiatives to boost RAM growth.
The Reserve Bank of India (RBI) has cut the repo rate. So, all banks have lowered their lending rates based on an external benchmark. What about deposit rates? Do you think they have peaked?
I don’t think we will increase deposit rates now. And in the next quarter we will take a call on the matter.
With liquidity remaining tight, will you consider reducing the liquidity coverage ratio (LCR), now that the RBI has said the revised norms will not come into effect for at least one year?
Our LCR is 135 per cent. The bank’s credit-to-deposit ratio is 72 per cent. So, we have the cushion to grow advances. And with our activities, the credit-to-deposit ratio is likely to improve in this quarter from the 72 per cent. And on the LCR, we have enough room to grow loans.
I am expecting this LCR will help us in growing the portfolio and maintaining liquidity. So, we don’t see any challenge on liquidity and growth. We have sufficient liquidity to support growth. Our capital too is sufficient.
The cost-to-income ratio in Q3 went up to 54 per cent from 51 per cent a year ago. How do you bring the ratio down?
It has gone up because of wage revisions. Our strategy is to work on income since the costs are fixed. The yield on advances will improve.
And the second part is my technical writeoff. In the third quarter, recovery from the technical writeoff was only around ₹750 crore. We are planning to increase this to ₹1,500-1,600 crore in this quarter, which directly goes to operating profits now. This includes the ₹500-700 crore that is expected from National Asset Reconstruction Company.
With all this, income should be sufficiently high to take care of our costs. The cost-to-income ratio should come down on account of this.
The margins have come under pressure…
There is a challenge there. The Q3 margins were 2.9 per cent. Our guidance was 2.9-3 per cent for FY25.
You took charge one and a half months ago. What are your priorities?
I gave an outline of this on joining. I discussed around five points. My first point was human resources, which is the heart and soul of the organisation, any organisation. So, I want to bring transparency to the process, performance management, promotion, and transfer.
If the organisation takes care of the employee, I am sure the employee will take care of customers and that is another priority we have now — customer centricity and customer service. Employee and customer, if both are satisfied, will add value to my investors.
The third is the digital footprint. We are taking initiatives on that. A lot of things are in the pipeline. Next is cyber security and risk management.
The robustness of the system is another priority. And we will work on compliance and risk culture. Another important factor is value maximisation from the subsidiaries. We have five of them, and five associates. Ten organisations are with PNB now, other than our regional rural banks. With product offers, and with a focus on these subsidiaries, we can generate value from that.
