Punjab National Bank managing director Atul Kumar Goel is gung-ho about the banking sector credit growth on the back of improved consumption demand and higher government spending in the capital intensive sectors. He aims to grow PNB’s lending portfolio by 10-12% this fiscal despite hardening of interest rates.

In an exclusive interview with ET’s Atmadip Ray, Goel said that the bank is capital ready to lap up the growth opportunities going forward. He said that the revival of the economy along with focused recovery initiatives would help the lender to reduce NPA to single digit and improve net interest margin to 2.9%.

Edited excerpts
With the Indian economy showing signs of resilience amid global turbulence, how much credit growth are you envisaging for the banking sector?

The country has shown exemplary resilience both from the Covid-19 induced stagnation and also from the ongoing global situation. Our strength is intrinsic. We are primarily a consumption based economy with a strong demographic dividend. When the developed world is reeling under high inflation and the policy makers are finding it difficult to curtail it, we have been able to manage the inflationary expectations quite well. I am hopeful that the Indian growth story will remain intact.

As far as credit is concerned it is expanding in double digit and will continue to do so despite rising interest rates. Stronger economy, budgetary support from the government in the capital intensive sector, schemes such as PLI (production-linked incentive scheme) and ECLGS (emergency credit line guarantee scheme), and better consumption demand will pave the way for a better credit growth. The banking sector is also stronger and well positioned to grab the upcoming opportunities.

What is the credit growth target for PNB? Which are the areas likely to contribute most in PNB’s credit expansion?

We are envisioning 11-12% in credit growth. In the June 22 quarter, we crossed Rs 8 lakh crore in global advances which grew at 10% year-on-year. Our retail loan portfolio increased by 11% and personal loan increased by 25%. Besides retail, we will also be targeting sectors such as MSME (micro small and medium enterprises), manufacturing, renewable energy and infrastructure sectors such as roads. All these sectors are getting support and enhanced investment from the various policy initiatives.

PNB’s gross non-performing assets (NPA) ratio stood at 11.2% as on June 30 this year. When do you expect NPA to reduce to single digit? What is your guidance on NPA management?

Asset quality is one of the most critical areas in determining the conditions of the bank. We have increasingly focused on this aspect. Our NPAs have gone down sequentially and yearly. GNPA ratio improved by 306 basis points year-on-year and there was improvement of 51 basis points quarter-on-quarter.

Similarly, the net NPA ratio improved by 156 basis points year-on-year and 52 basis points quarter-on-quarter. In absolute terms also our GNPA and NNPA have declined YoY by 13.36% and 17.72% respectively. To improve the credit underwriting standards we have set up separate verticals for sourcing of leads, sanctioning and monitoring of loans. Underwriting standards have further been strengthened through PNB LenS (Lending Solution) which is a system driven standardized credit processing application.

To enhance collection efficiency, the bank has become the first bank to go-live on BBPS (Bharat Bill Payment System) channel and also become active on payment gateway channels through which customers can make payment using UPI (united payment interface), mobile banking, internet banking along with debit cards. We have taken a lot of initiatives for NPA recovery and with enhanced implementation, we expect gross NPA ratio to come down to single digit and net NPA level to below 4% by the end of the current financial year.

What is your guidance on net interest margin (NIM) for the year?

Definitely our margin will be better than last fiscal year with repo rate hike by Reserve Bank of India and with transmission in lending rates taking place NIM is likely to improve. However as the cost of deposits also increases subsequently to meet credit demand, NIM will stabilize gradually. I expect it to remain in the range of 2.80-2.90%.

You said the banking sector is ready to lap up the opportunities coming with rising credit demand? Is PNB capital-ready for this? How big is your capital raising plan this fiscal?

For FY23 we have approval for raising capital up to Rs 12000 crore in one or more tranches — by way of Basel Ill compliant additional tier-1 (AT1) bonds up to Rs 5500 crore and tier-II bonds up to Rs 6500 crore. The approach will be gradual and will depend upon the progress in business growth, market situation, and pursuant to applicable laws/guidelines.

Out of Rs 5500 crore AT1 plan for the year we have already raised Rs 2000 crore in July. Even without raising any equity capital during the current financial year our CET1 (common equity tier 1) was at 10.94% and CRAR is expected to remain around 14.5% level.

We had raised Rs 7690 crore in FY22. Out of which Rs 1800 crore was raised by way of QIP (qualified institutional placement), Rs 1919 crore was raised as non-convertible fully paid up tier II bonds and Rs 3971 crore was raised as tier 1 bonds.

Do you have plans to add more branches and ATMs in your networks this fiscal?

The expansion and rationalization of banking outlets is an ongoing process and is crucial for the bank to improve its visibility, garner business, increase market share and create brand image/awareness. We are planning to open around 200 branches mainly in the southern and western part of the country. Up to March this year, more than 1000 ATMs have been rationalized. We further plan to rationalize our branches and ATMs in certain pockets of geography to consolidate our position.

However, we plan to keep our total number of branches at around 10000 level to maintain widespread and deeper reach for our customers.

RBI has approved PNB’s plan to infuse Rs 500 crore in PNB Housing Finance. What are your thoughts about PNB’s future shareholding in the mortgage lender?

Yes, we have got approval from RBI for infusion of up to Rs 500 crore for subscribing to PNB Housing Finance’s proposed rights issue of up to Rs 2,500 crore. Post rights issue, the holding of the bank would come down below 30 per cent but would be higher than 26 per cent so that the bank retains promoter status.

What are your plans regarding your existing overseas subsidiaries and joint ventures? Would you like to expand overseas operations?

Our bank has overseas business through branches in Dubai and Gift city, Gandhinagar. We have two international subsidiaries, PNB International Ltd London (PNBIL) and Druk Bank Ltd Bhutan. Through a network of seven branches, PNBIL offers a range of financial services to its customers.

The Druk Bank is the first FDI bank in Bhutan and serves the country with eight branches. Our international joint venture Everest Bank Ltd is catering to over 10 lakh customers through 117 branches. We are focusing our international business through these ventures and we don’t have any further expansion plans for overseas locations.

PNB owned several real estate assets following the merger with Oriental Bank of Commerce and United Bank of India. Do you have any plan to monetize these?

Post amalgamation, rationalization of existing networks of branches, ATMs, offices was essential. Most real estate assets have been used for setting up various vertical offices for greater operational efficiency. However, we have

identified some of the real estate assets for monetization.

Can PNB’s shareholders expect better valuation going forward? What is in store for them?

We are a well-capitalized bank while managing to reduce government shareholding to 73.15%. We have started giving more focus on our asset quality through strengthened credit underwriting, enhanced collection efficiency and NPA recovery drive. We aim at credit growth of 11-12% on the back of a healthy demand pipeline.

With all such initiatives, it is expected that quality credit growth going forward will further improve the profitability of the bank. Gradual improvement in margin, steady operational efficiency coupled with adequate provision buffer will surely improve the shareholder’s value in times to come.

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