It’s rare for a company chief to sign results of two competing entities in a span of one week. KR Kamath, now chairman and managing director of Punjab National Bank (PNB), announced the second-quarter results of Kolkata-based Allahabad Bank before moving to New Delhi for his new assignment where he declared PNB’s results. Kamath shares his views on business environment and opportunities with Abhijit Lele. Excerpts:
You have taken charge at a time when there are signs of improvement in business environment, especially credit demand. What does it mean for business growth?
The year-on-year growth in advances has been 25.4 per cent till September 2009, which is much ahead of the industry’s growth of around 11 per cent. Our growth will be better than the system for 2009-10. (The Reserve Bank of India has revised estimates for non-food credit to 18 per cent from 20 per cent.)
The bank had shown good performance. What kind of challenges you see ahead?
The bank has kept its high standards. It is reflected in parameters such as net interest margin (3.64 per cent at the end of the second quarter). Our aim is to improve on this. We have to look at ourselves to improve. There are many areas where we have limited presence or are not present at all, like in capital markets. The overall activity will go up with a thrust on new areas. There is scope for improving recoveries from bad loans (it was 52.57 per cent in September 2009). Beyond this, it is too early for me to comment in detail.
The Reserve Bank of India (RBI) has asked banks to reach a level of 70 per cent coverage for bad loans by September 2010. Is this a stiff norm?
PNB had a coverage ratio of 91.12 per cent at the end of September. Our aim is to hold on to this.
At RBI’s policy meeting, bankers made a case for flexibility on this by factoring in the floating provisions made for calculating the coverage ratio.
They (regulator) will issue a clarification on the use of floating provisions. The best way to achieve higher standards is by fine-tuning regulatory norms to increase provisions in a phased manner.
Which segments will you target for business growth?
We are well-entrenched in the Indo-Gangetic region. This provides us business in the agriculture and the small and medium enterprise (SME) segments. Rains, though delayed, offer us scope to increase farm credit in the rabi season. Our total outstandings in the MSME (micro, small and medium enterprise) portfolio have grown Rs 7,330 crore in the past six months to Rs 31,030 crore. There is every reason to strengthen the SME segment. We get better yield from this segment than from the corporate sector.
In the last 12 months, much of credit growth has been in the infrastructure sector, especially in power, followed by roads and ports. Our infrastructure portfolio at the end of September was Rs 21,544 crore (13.14 per cent of advances) and there is room to expand this further.
The interest rate cycle seems to be turning (ready to move up) after being in the declining mode for a year. Will the bank be able to maintain its net interest margin (NIM) level in the remaining part of the year?
Margins have been consistent from March 2007 across different business environments. (For example, the interest income of banks was impacted by a slowdown in credit off-take). Our quarterly NIM has moved between 3.27 per cent and 3.85 per cent since March 2007. Our effort will be to improve interest yield and control cost of resources (deposits and funds).
The bank's capital adequacy ratio was 14.78 per cent in September 2009. Though it is much above the norm, have you asked for additional equity from the government after factoring in the growing emphasis on core capital to assess the strength of banks?
Our overall capital adequacy is high. Plus, we have a Tier-I level of 9.41 per cent that partly reflects the strength provided by core capital. I have yet to apply my mind on seeking equity from the government.
The bank forged a venture with the Principal group for life insurance, but the business has remained a non-starter. Has the bank lost the opportunity to earn fee income by hawking life insurance through its branches? What are your plans for this?
The bank is presently not involved in insurance manufacturing. However, it has invested around 30 per cent in PNB Principal Insurance Broking Pvt Ltd and Principal PNB Life Insurance Company. The life insurance company has not been given clearance for starting the insurance business by the regulator. The Insurance Regulatory Development Authority (Irda) has asked us to wind up the company.
The bank has now taken a view to buy the entire stake in this venture and move Irda for deferment of winding-up proceedings so that the bank may tie up with a new partner for life insurance activity.
What is your business plan for the long term?
The bank has put in place a comprehensive road map in its Vision 2013 document. It is aiming at a total business of Rs 10 lakh crore by 2013. Plus, it has launched a project to establish 100,000 touch points in unbanked villages by 2013. The bank aims to increase its customer base to 150 million by 2013.
