Punjab National Bank has seen a build-up of non-performing assets in the first quarter but Chairman and Managing Director K R Kamath says it is not a cause for concern. With part of the increase due to agri loans, a focus area is going to be working on farmers to repay on time. The other is on preparing a pipeline of leaders, he tells Vrishti Beniwal and Sidhartha in an interview. Edited excerpts:
PNB’s non-performing assets (NPAs) were 1.82 per cent in the first quarter. Is that a cause of concern?
As long as my gross NPAs are within two per cent of advances, they are within manageable levels. In an industry like banking, where you are doing a business of taking risk, all the accounts you take may not be proper and with the business growing, NPAs will also grow. We need to have the capability to manage that. It is desirable that we declare NPAs at the earliest opportunity, take action, and recover the amount.
Of the Rs 1,200 crore we added this quarter, about Rs 350 crore came from agriculture, Rs240 crore came from SMEs (small and medium enterprises) and Rs 100 crore from retail. NPAs in agriculture were high because the debt waiver scheme came to an end on June 30. There is a tendency in people to think, ‘Should I pay my current dues or should I wait?’ It requires some time for us to educate them that the debt waiver scheme is over and now they have to pay.
Your provision coverage ratio (PCR) used to be around 90 per cent and has now come down, though you are still above what RBI has stipulated...
If you do a write-off, the PCR comes down. There is no incentive for a bank to write off. You can go on accumulating the NPAs and provide for it and keep your PCR higher.
Yes, we are still above the RBI (Reserve Bank of India) prescribed level of 70 per cent. Also, we have been looking at things in a conservative manner. There are profits which are coming to us substantially. We are always trying to provide for it and cover it. We were at 90 per cent, came down to 80 per cent, and then went to 86 per cent and again came down. Maybe in the coming quarters we will again provide for it, take it high and then write off. It is a question of managing the balance sheet.
How would you explain the decrease in net profit on a sequential basis? Is it because of NPAs?
If we look at our business projections normally, 15 per cent is in the first quarter and 25 per cent in the second quarter. So, the first half accounts for 40 per cent of the business growth, while the second half accounts for 60 per cent of it. But our net interest margin (NIM) and net interest income has increased sequentially. That means my main revenue arising out of business has gone up.
How did you find the shift from the benchmark prime lending rate (BPLR) regime to base rate? Have you lost business, too?
I did not find any difficulty in implementing the base rate because the customer is more concerned about what he has to ultimately pay. More, the rate is market driven and not by our scientific calculations. If the rate was BPLR minus 150 basis points earlier, now it is base rate plus 150 basis points. The effect of not being able to lend below base rate is quite minimal on PNB.
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Banks have started increasing BPLR. Will this encourage borrowers to shift to base rate?
The rationale for increasing the BPLR was that for quite some time, we had not given any increase to depositors because of the liquidity available in the system. They were getting a raw deal because when inflation was increasing, there was need to give a higher rate of interest to the depositors. Now, when the liquidity is drained, I have to look at how to increase my deposit. I decided to do it through increase in BPLR. People who want to shift to the base rate can do so and this will serve another purpose of my requirement, to manage two rates together.
What is your assessment of overall lending rates?
When I declare September quarter results, I will factor in the cost of deposits and decide on the base rate. It may go up or even come down.
Last fortnight, there was a decrease in the outflow of loans. How is the demand for funds, now that the 3G (telecom spectrum) rush is over?
PNB is keeping the growth rate at 22-24 per cent, while RBI projected the system to grow at 20 per cent. For 3G, we did not give out big money, so the impact won’t be much. Besides, there is always a time lag between the proposal and the disbursal.
How is the liquidity situation?
Liquidity got drained when the 3G money went to the government, quickly followed by the advance tax and the broadband spectrum. Normally, this money comes back into the system with a lag of three to four weeks. This time, there was a little more lag, but with Rs 38,000 crore reduction in government bonds, liquidity came back, though it may not be as easy as it was in the past. RBI has said they will keep enough liquidity in the system, so the growth of the economy is not hampered.
What about deposit mobilisation?
The overall growth of deposits in the system has slowed. It is 16-18 per cent for PNB, which needs to be accelerated. We hope to catch up with the growth to meet the credit demand.
There is a debate on freeing the savings bank rate. How will this affect banks?
Today, the savings bank rate is working as an anchor rate, around which your entire deposit rate structure is developed. If the interest rate on savings is free, it can create issues for the time being. This experiment was once done by RBI and immediately they rolled back. I am just coming back from Nepal. I was surprised when people said they are paying 10-11 per cent interest rate on the savings account. Earlier, they were paying 3-4.5 per cent, but suddenly there was a liquidity crunch. So, everybody has increased the rates. They said term deposit is normally in bulk and they don’t encourage it. So for some time to come, savings bank rates should remain regulated.
Isn’t this the view of a large established bank? What about small players?
It will be more dangerous for smaller players and new entrants because they will end up paying a much higher rate of interest than what they are paying in a regulated regime.
By 2012, three-fourths of the management will retire in Indian banks.
At the top level, there are going to be retirements. The challenge for us is to bring a succession plan. We are working on this. We are creating a 2020 team in PNB, which will include people at the middle level who retire after 2020. We have identified about 60 people in scales IV and scale V (chief managers and assistant general managers), who are left with 10 years of service and can be groomed for the future, both at the bank level and the industry level.