PNB plans to spin off rural branches into separate entity

Punjab National Bank (PNB) plans to hive-off its rural branches and merge them into a separate entity in 1-2 years, executive director K C Chakrabarty said on Thursday.

"In another 1-2 years we may consider the merger of all the rural branches, which are not capable of being linked to the centralised banking system with the RRBs to form a separate subsidiary, Punjab National Rural Bank," he said.

The bank is currently planning to merge the regional rural banks sponsored by it in Haryana, Punjab and Uttar Pradesh.

Though Chakrabarty does not see the merger of sponsored RRBs with the parent bank immediately, he does believe that the regulatory process for the merger of RRBs across states would be clearer in another 1-2 years. PNB itself would have completed linking much of its network of centralised bank branches by then.

The bank has already linked over 1,000 branches on the CBS and expects 2,000 branches to be linked by March 2006. "This (rural bank) would be a focused business segment which would be more viable," he said.

Chakrabarty believes that such a move will also enable the bank to address development concerns more effectively.

The bank, which raised nearly Rs 1,950 crore through its recent public issue of 50 million shares, is drawing up business plans for the coming few years.

"We now have no problems on capital adequacy for the next five years," Chakrabarty said. He added that the bank can look at investments in expansion, infrastructure and technology now.

"PNB is planning to set aside $80-100 million (roughly Rs 400 crore) over the next five years to fund international growth," he said.

With cash in its coffers, Punjab National Bank may also be looking at acquisitions in Africa and South East Asia, said Chakrabarty.

"We are not averse to acquiring banks in Africa and South East Asia if it is possible. We can now think about these options in detail, now that we have the required capital," he added.

The bank recently got a provisional license in Dubai, and plans to set up a representative office there in April.

A UK subsidiary is also on the anvil, for which the bank has appointed Deloitte Touche Tohmatsu.

Further, the bank is also interested in the Hong Kong, Singapore, Poland, Canada and Thailand markets.

"Unless we bring in global outlook and experience, we will not be able to compete with foreign banks in the domestic market. Further, my customers are also becoming increasingly global," Chakrabarty said.

Punjab National Bank currently is not looking at domestic acquisitions, Chakrabarty said. "Legally, we are not permitted to acquire another bank," he said.

PNB had bailed out Nedungadi Bank a few years ago, but Chakrabarty said it was a bailout case and not strategy. "(Nedungadi Bank merger) was a moratorium route, where the regulator comes into the picture."

Chakrabarty believes that the government through its increased emphasis on consolidation is creating the atmosphere for such mergers. However, legal changes are necessary for banks to look at such mergers as strategy.

PNB will be focusing on payment mechanism, selling of financial products, such as insurance and mutual funds, including depository services.

Punjab National Bank is the only bank in the country that has 1,000 branches enabled with Real Time Gross Settlement, Chakrabarty said. The recently inaugurated its 1000th centralised bank branch.

PNB has also proposed to the Securities and Exchange Board of India to become their settlement banker for T+1 settlement, he said, adding that it is the only bank equipped to do so at present.

"Credit growth must keep pace with deposit growth in the longer run," said Chakrabarty, adding that the average 15 per cent deposit growth is expected in the system.

The bank is also planning to tap the robust growth in the services sector through a separate financing scheme, and expects a 25 per cent growth per annum in credit growth from such projects.

"Till now we have been appraising services sector projects on the same parameters as manufacturing sector."

The bank is also looking at securitising its portfolio to the tune of 2-3 billion rupees every year in sectors where the bank wants a limited exposure, such as steel, real estate and construction.

Chakrabarty expects the 10-year government securities to hover in the 6.5-7 per cent over the next one year, unless something dramatic happens on the dollar-rupee exchange rate.

"I do not see any hardening interest rates, because global interest rates are still soft and our short-term rates are still higher," he said.

The entire mortgage market is poised to change, believes Chakrabarty, and hence there is merit in keeping its subsidiary PNB Housing Finance as a separate entity.

"Globally, housing finance activities are segmented. Mortgages are acquired by a separate company, maintained by another and appear in the books of banks and financial institutions."

"PNB Housing Finance has a good role in acquiring the customer and maintaining the loan," said Chakrabarty, adding that the unit may become a direct selling agent for the bank.