Credit growth in FY27 could touch 14% despite West Asia crisis: PNB MD

PNB sees credit growth touching 14% in FY27 despite West Asia risks, with ECLGS 5.0 expected to support MSMEs and sustain lending momentum

A day after the government announced the fifth edition of the Emergency Credit Line Guarantee Scheme (ECLGS 5.0), Punjab National Bank (PNB) Managing Director and Chief Executive Officer Ashok Chandra spoke to Asit Ranjan Mishra in a virtual interaction on what lies ahead for the banking sector. Edited Excerpts: 

  Will ECLGS 5.0 meaningfully help viable firms facing temporary stress due to the West Asia crisis, or will it postpone recognition of stress in the banking system?

 

No, the liquidity injection has happened at an appropriate time. Though I am not seeing any stress in the system as of now, while interacting with my exporters and importers who are dealing with those West Asian countries, I did visualise that, going forward, some challenges will definitely come in the system. Maybe from the month of June, July, when LC (Letters of Credit) repayments start crystallising. We understand our responsibility, and we will definitely facilitate the funds for the required entrepreneurs to ensure that they are not affected by liquidity concerns. 

 

How much of PNB’s current Micro, Small and Medium Enterprises (MSME) and aviation portfolio will be eligible for ECLGS 5.0?

 

We will have to calculate that data, but it (the scheme) is for all MSMEs. This time, there is no SMA (Special Mention Account) 0,1, or 2. Everybody will be eligible. As per the requirement, we need to verify, and if we feel that the genuine requirement is there, I think the bank has to take a call on that.

 

What are the challenges that you foresee from your experience of earlier rollouts?

 

Last time, during the Covid-19 period, it was one of the important factors that saved the MSME sector. Even if NPAs (non-performing assets) in the MSME segment were in the range of around 3-4 per cent, the scheme facilitated the sector to overcome a challenging situation. In this phase, it (ECLGS 5.0) will facilitate MSME entrepreneurs to meet those challenges and come out successfully once this entire challenging period (the West Asia crisis) is over.

 

Are there any particular lessons from the implementation of previous editions of ECLGS? 

 

It becomes very important to ensure that genuine beneficiaries are identified. We have more data points in place today, apart from several digital footprints. So, for all the lenders, including our bank, we have clear visibility of who requires this credit facility and where we need to inject it.

 

For PSU banks across the system, including PNB, credit is growing faster than deposits. What are the specific regulatory or policy changes required to fix the structural deposit mobilisation problem?

 

I don’t think any structural change is required from the regulatory side. Two things are happening in the system: One, is that the more you move towards (becoming) a developed economy, the more definite will be the transition from core bank deposits to the stock market. These are general things which happen in developed societies and we are witnessing the same in our system. 

 

The second aspect is that we need to come out with some new revamped schemes. The plain vanilla product, which used to work some five years back, will not work.

 

So, the deposit product has to be sector-specific, that is, targeted schemes backed by strong digital footprints. This means we should have a robust mobile banking facility. We should have a very state-of-the-art internet banking facility, and services should be available without any hassle. If you can ensure these two or three important features on the deposit front, I am sure there will at least be good growth in the system. 

 

While we have a plain vanilla savings product, on April 12 last year, which is our foundation day, we revisited our entire CASA (Current Account Savings Account) product range. And today we have special products for the youth, women, salaried people, farmers, senior citizens and pensioners, etc. We have mobilised 47 lakh accounts under these revamped schemes now. And the amount mobilised is ₹22,000 crore.

 

So, we have seen that if we come up with certain new initiatives, in the current circumstances we will definitely be in a position to achieve 9 to 10 per cent minimum CASA growth.

 

Do you expect a slowdown in credit growth due to rising costs driven by the West Asia crisis?

  No, not at all. If you see our numbers last year, the guidance we gave was for 11 to 12 per cent credit growth, whereas we have touched 12.7 per cent credit growth. That’s the reason why we have given a revised guidance. The new guidance this year is 12 to 13 per cent (for FY27) after factoring in the West Asia crisis. I can tell you with confidence that we will be touching more than 13 to 14 per cent credit growth (in FY27). Because every quarter in (FY26) our MSME growth was more than 20 per cent. In retail and core retail, we have grown more than 18.2 per cent. Even in the corporate loan book, where many people say that corporate credit is not picking up, we have grown by 11.6 per cent. In fact, in April, the first month of FY27, more than ₹25,000 crore has already been sanctioned. So, I think a lot of activities are happening in the bank, and we see a wonderful opportunity in credit, and things are happening in almost all the sectors.

 

Do you see Anthropic’s Mythos as a challenge? 

 

That is a challenge. And for that, the IBA (Indian Banks' Association) level discussions have started. We have made a team, and we are all engaged in that. So, we are fully aware of the threat which is going to be posed by the Mythos artificial intelligence model. The entire banking system has teamed up to come up with some action (plan) for that.

 

After the Centre gave relief on adjusted gross revenue (AGR) to Vodafone Idea, has the telco once again turned attractive for lending? 

 

It is not a question of being attractive or unattractive. At the banking community level, the consortium level, discussions are happening now, and we need to examine what sort of proposal comes. We will take the credit decision on that basis. 

 

How soon do you expect your cost of borrowing to come down?

 

I am definitely expecting an improvement of around 5 to 7 basis points (bps) in this quarter. More visibly, it will come down starting Q2 because, as of now, the deposit rate — which was expected to come down substantially — has not moderated in the system. So, we expect the deposit rate to come down in another two to three months.

 

Is PNB looking at a fresh Qualified Institutional Placement (QIP) in FY27, or is internal accrual sufficient to support the loan growth target?

 

We are not going for any fresh QIP or any capital raising in any form, 81 or the tier 2, because our CRAR (capital to risk-weighted assets ratio) is 17.74 per cent and CET1 (common equity Tier-I) is 13.62 per cent. We are very comfortable as far as the credit part is concerned.