Expect to post moderate profit in every quarter of this fiscal: PNB MD

Punjab National Bank expects to post a net profit in every quarter of the current fiscal year, mainly due to its treasury operations, even as it expects the economy to fully recover by January 2021.

“We expect moderate profit in every quarter of the present fiscal year. The organisational structure post the amalgamation will be effective from July 1 and we will be able to take benefits of a bigger bank from the third and the fourth quarter,” PNB managing director and chief executive officer SS Mallikarjuna Rao said in a press conference on Saturday, a day after the bank announced its results Q4FY20.

On April 1, Oriental Bank of Commerce and United Bank of India amalgamated into PNB.

The bank earned over Rs 1,100 crore from the treasury operations in Q4FY20, due to lower interest rates in government securities after the Reserve Bank of India reduced the policy repo rate, compared to Rs 400-Rs 500 crore it usually earned in the previous quarters.

“We will be able to take advantage of the treasury business in the first two quarters of the present financial year, following which the gains might be limited as the rates may firm up, but by then we will be able to do more lending,” Rao told Business Standard. He added that the bank expected to earn Rs 1,800 crore from treasury operations in the first half of the fiscal year. He added that the state-owned bank would be able to take care of its provisioning needs by the end of the second quarter.

The bank’s prime goal in 2020-21 would be to strengthen its balance sheet so that it can create a better case for the amalgamated entity for the next fiscal, too, Rao said.

“Originally, we had planned a credit growth of 12 per cent before the pandemic had hit. However, the impact can be seen heavily now and we expect the economy to come back only from October 1 in a mild manner and from January 1 (2021) in an effective manner, therefore, the credit growth may be at around 6 per cent,” the MD and CEO said.

About 30 per cent of retail and micro, small and medium enterprises (MSME) borrowers have availed the moratorium on their loan repayments, allowed by the RBI to tide over the impact of the Covid-19 pandemic, the bank said, adding that it was a “good sign”. This, despite the fact, that the bank had extended moratorium to all its retail and MSME borrowers automatically. However, 70 per cent of such borrowers decided to pay back.

The bank, however, has been passing the benefits of the moratorium to non-banking financial companies only on a case-to-case basis. Out of 145 NBFC accounts, 31 have availed the moratorium.

The bank could not register a profit in Q4FY20 due to the inexpected situation arising because of the pandemic as it could not recover money from big accounts such as Bhushan Power and Steel. The bank’s loss before tax stood at Rs 969 crore in Q4FY20, compared to a loss of Rs 7,209 crore in the same period last year. The bank recovered over Rs 10,000 crore from its bad loan accounts in the previous fiscal year. It expects a recovery of Rs 6,000-Rs 8000 crore in the present year.

Around Rs 2,800 crore-worth borrowings remained standard for the bank in 2019-20 because of RBI’s dispensation to not treat certain stressed accounts as NPAs. The bank had to make a provisioning of around Rs 140 crore towards it, which it will continue to make in the first quarter of this year, too.

Rao said that the bank would take a view on raising capital for the amalgamated entity after preparation of its opening balance sheet which will be taken up in the next board meeting, scheduled to be held in the coming two weeks. “We will assess if we have to go to the government to take the market route. On a standalone basis, PNB is sufficiently capitalised,” he added.

The bank’s capital adequacy ratio, considered to be one of the key indicators of its health, inched up to 14.14 per cent in this quarter, compared to 14.04 per cent in the previous quarter. The RBI requires banks to maintain the capital adequacy ratio at 11.5 per cent. Banks are required to maintain a minimum capital to ensure they do not lend all the money they receive as deposits and keep a buffer to meet future risks.