PNB focuses on quality growth and profitability this fiscal | Popgen Tech
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The Punjab National Bank (PNB) is quite optimistic about its growth prospects and is looking to ride on the ongoing trend of the Indian economy emerging from the stagnation caused by the pandemic. BusinessLine interacted with Atul Kumar Goel, Managing Director and CEO of the country’s second largest public sector bank. Goel is also the Chairman of the Association of Indian Banks. Excerpts:
Do you expect RBI to make further interest rate hikes in the upcoming August MPC meeting?
The current repo rate is at 4.90 percent and with CPI inflation still above RBI’s target level, I expect that RBI may raise rates at the next monetary policy meeting in -5th of August. After August, I think RBI will monitor inflation data more closely to decide on future interest rate path. Inflation has emerged as a global phenomenon, and we are seeing almost all economies fly under this pressure. The Government of India and RBI have taken several measures, including reduction in fuel duty and reduction in import duty on certain edible oils and to some extent, we will be able to control the rise in prices. I expect inflation to moderate in the second half of this financial year.
Do you expect PNB to sustain the profit performance of the last fiscal even in the current fiscal?
We expect our operating profit to improve from the last financial year with an increase in net interest income as well as fee-based income and improved overall recovery in NPA and Technical Write-Off (TWO) accounts. However, the net profit will be subject to the NPA provision requirements for a better Provision Coverage ratio.
What kind of Net Interest Margin are you aspiring for in the current fiscal?
We expect our operating profit to improve from the last financial year with an increase in net interest income as well as fee-based income and improved overall recovery in NPA and Technical Write-Off (TWO) accounts. However, the net profit will be subject to the NPA provision requirements for a better Provision Coverage ratio.
What kind of Net Interest Margin are you aspiring for in the current fiscal?
Certainly, our margin will be better than last fiscal year; with the increase in the repo rate by RBI and the transmission in lending rates taking place, NIMs tend to improve initially. However, as the cost of deposits increases subsequently to meet the demand for credit, NIM will stabilize gradually. I expect it to remain in a range of 2.80-2.90 percent.
How did PNB do on credit growth, NPA recoveries in the first quarter of this fiscal?
Our credit growth for June 2022 is 10 percent, very much in line with expectations. The total reduction in Q1FY23 was ₹ 8,749 crore, of which ₹ 2,681 crore came through cash recovery and ₹ 2,607 crore was enhanced. A total of 60,780 accounts were cleared through OTS amounting to ₹ 697.77 crore. As a result, our asset quality improved and the gross NPA ratio decreased by 306 basis points YoY and by 51 basis points QoQ. The net NPA ratio, showed a net decrease of 156 basis points YoY and 52 basis points QoQ. Our performance was better, and with the economy now out of the stagnation caused by the pandemic. We will see better returns and better performance in most sectors.
What will be your top priorities in the remaining months of the current tax year?
Being the second largest public sector bank is a big responsibility. This year, our focus will be on growing quality with profitability, digitizing the customer journey, customer centricity and analytics-based offerings. Our new product PNB Pre-Approved Personal Loan, offers eligible customers a personal loan in 4 clicks and 1 OTP. We will be consolidating and automating CASA’s reconciliation, settlement offices and back offices into a national processing and settlement center. Customers will get faster service and better products through the digitized loan journey.
What is the status of NPA recoveries in Q1? How much had been recovered through the NCLT?
Our asset quality has improved both on a quarterly and annual basis. The recoveries were better than last year. We recovered close to around ₹ 693 crore through NCLT in Q1FY23 while ₹ 2,703 crore was recovered in the last fiscal. We will continue to focus on minimizing slippage and maximizing recovery through timely recovery actions in line with the Bank’s recovery strategy. We are working on a comprehensive Application Software for Digitization and Automation of Bank’s Recovery and Litigation functions. It will bring all recovery actions on one platform, comprehensive quantitative analysis can be done to maximize recovery in targeted NPA Accounts. With support from the demand put forward, economic activity is increasing and is expected to recover further. All this will have a positive impact on the recovery of the banking sector in the coming quarters.
Several public sector banks are facing treasury losses due to rising secs yields. How is the situation playing out for PNB?
Treasury markets are moving along with inflation and RBI measures expected to raise rates, and yields are expected to remain volatile in the coming months. Many factors are working simultaneously, rising inflation, Federal Open Market Committee decisions, MPC decisions, the Government’s lending program, FPI flows, etc. upward bias. The bank’s SLR AFS portfolio is skewed towards shorter duration papers which are relatively less sensitive to rate hikes. We are aiming to keep the duration M of SLR AFS around 2, which indicates that the Bank’s AFS portfolio is less sensitive to rising interest rates.
What is your outlook on the rupee?
The current global economic situation, a more aggressive Fed, increased FII outflows, high trade deficit and inflation are leading to increased volatility for emerging market currencies, including the rupee. We have to prepare for more volatility as the news coming from the developed world is not so optimistic. However, this will not change the country’s long-term growth story. We are seeing many measures from the regulator and the Government to manage the rate of depreciation. Our fundamentals are strong, and foreign exchange reserves provide the much needed cushion. We have to wait for the storm to pass, and once the markets correct themselves, hopefully, the rupee will stabilise.
What is the credit growth aspiration for PNB this fiscal? Which segment—retail or corporate will drive this growth?
For the last two years, due to Covid and the structural changes, the growth in advances has been on the lower side. However, this year, we expect advances to grow by 10-12 percent. The public capex expenditure in the Union Budget is around ₹7.5 lakh crore, a sharp increase over the last year. The Government is taking steps to ensure that the money goes through all the projects with backward and forward links with other sectors. The revival of credit in capital-intensive sectors increases economic growth as it has a knock-on effect on other sectors. The economy is now out of the stagnation caused by the pandemic, and I expect credit to infrastructure and corporate lending to revive in this financial year. Retail lending has seen significant headwinds since the start of the pandemic, and the situation is likely to improve now as the impact of the pandemic subsides. The recovery in economic activity, the derivative effect of the increase in investments and spending on consumption can support the credit momentum.
