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Punjab National Bank is shedding high-cost deposits and has de-risked its loan portfolio. With these efforts, the top line growth might not have been impressive, but K R Kamath, the bank's chairman and managing director, tells Manojit Saha, the balance sheet is healthier now. Edited excerpts:
The Reserve Bank of India (RBI) had recently tightened liquidity to contain exchange rate volatility. How would that impact your bank?
We have remained liquid for the last one year or so. We don't have a pressure on liquidity; we have surplus liquidity of around Rs 5,000 crore.
RBI has said the measures are temporary. How long, in your view, would liquidity conditions continue?
It is a short-term measure because when the rupee was depreciating, RBI had to take quick action to stabilise the currency. It is difficult to say how long the steps would continue because it is a dynamic situation. Other things remaining unchanged, I think, in a couple of months, these steps might be withdrawn.
In the first quarter, your net interest margins (NIMs) were 3.52 per cent. Do you think you can hold on to these levels?
The margins are under pressure. But we have been trying to hold on to our NIMs at 3.5 per cent levels and I have been successful in doing so since the time I have taken over this bank. The pressure is on short-term rates. We have not raised these. As a strategy, we are offering short-term rates substantially lower than the overnight rates. Our focus is on retail deposits of one year and beyond.
The business growth has been muted for PNB in the last quarter with both deposit and credit growth below five per cent on a year-on-year basis. However, what was the strategy for holding on to the margins?
The strategy was to correct the mix in the liabilities' side. We have taken a conscious stance to consolidate the balance sheet by reducing bulk deposit from last October. That is when we started shedding bulk deposits, which resulted in single digit growth.
In March last year, we had bulk deposits of Rs 88,000 crore, 24 per cent of domestic deposits. Today, we are at Rs 35,000 crore, less than 10 per cent of total deposits. Shedding bulk deposits of Rs 55,000 crore has helped us sustain margins.
Though this shedding affects the topline growth number, the liabilities portfolio has become healthy. This is because our core deposit growth is 20 per cent.
The average growth in savings bank deposits is 15 per cent. Retail term deposits have also grown very well, by 25 per cent.
The whole composition of deposits has undergone a complete change in the last nine months. This had a huge impact on reducing interest expenses.
However, from October onwards, we would again start showing growth because of the base effect.
What has been the strategy on advances?
We have undertaken a correction on the loan book composition in terms of the risk profile. Loan growth is again lower because we have shed short-term loans and are focusing on hardcore business growth, which would happen from branches. I have shifted from a head office-driven bulk business on credit to branch-led credit growth, to sectors like agriculture, small and medium enterprises (SME), and retail.
Loan growth from branch level has also picked up. Hence, from October, advances would start showing double-digit growth.
We have contained growth in areas where there is stress, like commercial real estate, power, non-banking financial company and textile. But, in sectors which are still doing well, like engineering, our growth is more than growth.
With all these corrections, our topline might not have grown but internally, both on the deposit and credit side, we have totally changed the composition by reducing the risk.
On credit, which are the sectors you would grow?
We have seen growth in sectors like agriculture, SME and retail loans. In retail, disbursements are there, but repayments are also happening in a big way. As a result, incremental growth is not showing. We expect 15 per cent growth from retail lending this financial year.
Banks have seen significant treasury gains in the first quarter but now since liquidity is tight, yields have gone up. Do you expect treasury gains in this quarter, too?
The recent action of RBI has put pressure on the sale book. We are in the first month of the quarter, so we have to wait and watch for two months. But, yes, one cannot expect big treasury gains in this quarter.
With the first quarter review of monetary policy to be announced tomorrow, what is your expectation from the policy?
It would be a very tightrope walk for the RBI. While growth was required to be supported, the recent exchange rate volatility has compelled the central bank to tighten liquidity. Holding on to the liquidity control is essential at this point in time to keep the exchange rate under control. Hence, there is very limited scope for RBI to take any action (for supporting growth).
