 "We have stayed away from head office-driven biz: K R Kamath")
After being cautious in growing its balance sheet in the past couple of years, Punjab National Bank is now focused on consolidation. Chairman and Managing Director K R Kamath, in an interview with Manojit Saha, shares the bank’s road map. Edited excerpts:
Despite an improvement in asset quality, the bank’s margins have been about 3.5 per cent through the last six quarters. Why?
We managed to control our net interest margin from the cost side, not from the yield side. We control our costs. We have reduced bulk deposits from about Rs 88,000 crore in September 2012 to Rs 22,000 crore. We are not present in the certificates-of-deposits (CD) market for quite some time. As a result, CDs have come down to Rs 11,000 crore from Rs 24,000 crore a year ago. At the same time, we have improved the share of low-cost deposits to about 40 per cent. These steps have helped us maintain a net interest margin (NIM) of 3.5 per cent.
There is a limitation when you work through the cost route because once you shed the entire bulk deposits, the benefit is no longer available. The NIM might fall to 3.25 per cent in time. However, we have sustained it till now.
Both credit and deposit growth stood at single digits (year-on-year), as of December-end. How long will there be caution?
It depends on how you look at the numbers. On the deposit front, our overall core deposits are growing 23 per cent. Savings bank deposits are growing 14 per cent. Current account deposit growth, negative for the last two-three years, has now turned positive. In addition, term deposits, which were taken at card rates, are growing 30 per cent.
But overall deposit growth is single-digit because of the reduction in bulk deposits, which was a conscious effort.
Let me also add now, we have moved to double-digit growth on a year-on-year basis. By March, we should be able to catch up with industry growth, both on the credit and deposit sides.
What is the strategy on the advances front?
On loans, our focus is on retail, agriculture and small & medium enterprises. We have stayed away from head office-driven businesses, on both deposit and credit, and are focusing on branch-driven businesses, which have to come from retail. Till retail completely substitutes corporate businesses in which the demand is sluggish, growth rates will look low. But this strategy has been in place for the last 15 months. The consolidation phase is over and now, we have moved to double-digit growth.
On the credit side, the focus is on the micro, small and medium enterprise (MSME) sector. However, this sector also accounts for the most stress on asset quality.
MSME is a vast canvas. While I agree MSME is a vulnerable sector, it is not correct to say every MSME is vulnerable. So,
when there is no corporate demand for credit for new investment, we are leveraging our branch network for credit growth. We have about 6,000 branches and have focused on branch-led businesses — retail, agriculture and MSME.
Asset quality remains a concern for the bank, with slippages far exceeding recovery. What is the strategy to curb slippages?
Asset quality is a direct reflection of the state of the economy. The economic revival did not materialise as expected, which has resulted in increased stress on asset quality. As far as recovery is concerned, even if we take possession of a security or an asset and try to sell, it is difficult to get a buyer in these economic conditions and realise the optimum price for the property being sold.
If you see incremental delinquencies, the second quarter was better than the first; the third quarter was better than the second.
This financial year, the government infused Rs 500 crore of capital in the bank. Have you sought any further infusion?
In October, there was an indication if we focused on retail loan growth, the government would infuse further capital. During the October-January period, our sanctions in the retail side were Rs 2,900 crore, primarily due to housing loans. So far, we have received 10 per cent of the sanctions, that is, Rs 300 crore of capital. Apart from this, we have issued Rs 1,000 crore through Tier-II bonds, which will improve our capital adequacy ratio. I am quite optimistic when the economy makes a turnaround, I will have a good write-back from the provision for NPAs and investment depreciation.
Despite an improvement in asset quality, the bank’s margins have been about 3.5 per cent through the last six quarters. Why?
We managed to control our net interest margin from the cost side, not from the yield side. We control our costs. We have reduced bulk deposits from about Rs 88,000 crore in September 2012 to Rs 22,000 crore. We are not present in the certificates-of-deposits (CD) market for quite some time. As a result, CDs have come down to Rs 11,000 crore from Rs 24,000 crore a year ago. At the same time, we have improved the share of low-cost deposits to about 40 per cent. These steps have helped us maintain a net interest margin (NIM) of 3.5 per cent.
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How long will you be able to maintain this level of NIM?
There is a limitation when you work through the cost route because once you shed the entire bulk deposits, the benefit is no longer available. The NIM might fall to 3.25 per cent in time. However, we have sustained it till now.
Both credit and deposit growth stood at single digits (year-on-year), as of December-end. How long will there be caution?
It depends on how you look at the numbers. On the deposit front, our overall core deposits are growing 23 per cent. Savings bank deposits are growing 14 per cent. Current account deposit growth, negative for the last two-three years, has now turned positive. In addition, term deposits, which were taken at card rates, are growing 30 per cent.
But overall deposit growth is single-digit because of the reduction in bulk deposits, which was a conscious effort.
Let me also add now, we have moved to double-digit growth on a year-on-year basis. By March, we should be able to catch up with industry growth, both on the credit and deposit sides.
What is the strategy on the advances front?
On loans, our focus is on retail, agriculture and small & medium enterprises. We have stayed away from head office-driven businesses, on both deposit and credit, and are focusing on branch-driven businesses, which have to come from retail. Till retail completely substitutes corporate businesses in which the demand is sluggish, growth rates will look low. But this strategy has been in place for the last 15 months. The consolidation phase is over and now, we have moved to double-digit growth.
On the credit side, the focus is on the micro, small and medium enterprise (MSME) sector. However, this sector also accounts for the most stress on asset quality.
MSME is a vast canvas. While I agree MSME is a vulnerable sector, it is not correct to say every MSME is vulnerable. So,
when there is no corporate demand for credit for new investment, we are leveraging our branch network for credit growth. We have about 6,000 branches and have focused on branch-led businesses — retail, agriculture and MSME.
Asset quality remains a concern for the bank, with slippages far exceeding recovery. What is the strategy to curb slippages?
Asset quality is a direct reflection of the state of the economy. The economic revival did not materialise as expected, which has resulted in increased stress on asset quality. As far as recovery is concerned, even if we take possession of a security or an asset and try to sell, it is difficult to get a buyer in these economic conditions and realise the optimum price for the property being sold.
If you see incremental delinquencies, the second quarter was better than the first; the third quarter was better than the second.
This financial year, the government infused Rs 500 crore of capital in the bank. Have you sought any further infusion?
In October, there was an indication if we focused on retail loan growth, the government would infuse further capital. During the October-January period, our sanctions in the retail side were Rs 2,900 crore, primarily due to housing loans. So far, we have received 10 per cent of the sanctions, that is, Rs 300 crore of capital. Apart from this, we have issued Rs 1,000 crore through Tier-II bonds, which will improve our capital adequacy ratio. I am quite optimistic when the economy makes a turnaround, I will have a good write-back from the provision for NPAs and investment depreciation.