Punjab National Bank (PNB) will reprice its lending and deposit rates, lower non-performing loans, elevate recoveries and transfer Rs 2,700 crore of bad loans to the National Asset Reconstruction Company Ltd (NARCL) in the first phase by the end of this quarter, said its managing director and CEO Atul Kumar Goel.

Speaking to reporters, Goel said the bank will raise the repo-linked lending rates from next month. The interest rate on deposits will also go up following the repo rate hike of 40 basis points by the Reserve Bank of India (RBI) last week amid rising inflation.

“As we move to a higher interest rate regime, we may have an advantage of higher margins for one or two quarters. But the deposits will get repriced as and when it matures, along with the loan rates depending on the reset date. This will net off the margin advantage that we have. Only those loans linked to the external benchmark lending rate (EBLR) or the repo will get repriced immediately,” said Goel.

PNB is looking to lift its domestic net interest margin (NIM) to 3% in FY23, from 2.8% a year ago. “We will have to improve credit quality and increase fee-based and other income, even as revenue from treasury peaked last year. Higher credit growth will also improve our margins,” Goel said.

Credit Growth

The state-run bank is targeting a credit growth of 10% in FY23 compared to 6.18% in the previous fiscal. “We expect our home loans to grow faster at 15%. For the last two years our growth was not high because we did not do any portfolio buys. We will restart acquiring portfolios and also see some organic growth. The vehicle segment is also seeing strong demand where we posted growth of 25%. On account of Covid, people are wanting to purchase vehicles so that they can travel on their own,” said Goel.

In the current financial year, Goel sees credit growth picking up in sectors such as steel, cement and road infrastructure. The government is also going to spend heavily in the infrastructure sector,” said Goel.

NPAs and recoveries

The boss of Punjab National Bank wants to bring down gross non-performing assets (NPAs) to a single digit in the current financial year while ensuring that fresh slippages are less than recovery from bad loans.

“Our target is that every quarter, additions should be less than the recovery…On the basis of this plan, I am telling you gross (NPA) numbers will come in the single digit. On the corporate side, the NPAs are all taken care of. Our zonal managers, circle heads and recovery officers will be closely monitoring the stressed assets to bring them down to single digit,” Goel said.

In the quarter ended March 2022, PNB’s gross NPAs fell to 11.78% from 14.12% a year ago and 12.88% a quarter ago. In value terms, gross NPAs were Rs 92,448 crore as on March 2022. Net NPAs improved to 4.80% from 5.73% a year ago and 4.90% a quarter ago.

“We have already improved our asset quality. We aim to bring down our net NPAs below 4% in FY23, Goel said.

The bank has recovered Rs 6,321 crore from bad loans in FY22, up from Rs 2,498 crore a year ago. The total outstanding of bad loans referred to National Company Law Tribunal (NCLT) is Rs 68,550 crore which the bank has made provisions of Rs 66,800 crore, taking the total provision coverage to 97.53%, Goel said.

The lender is expecting recovery of around Rs 2,000 crore in the first half of the current financial year through NCLT cases.

NARCL

PNB plans to transfer bad loans worth Rs 8,000 crore, which have been fully provided for, to the NARCL. In the first phase, the amount transferred will be Rs 2,700 crore. “The first phase transfer to the NARCL should happen by the end of this quarter itself. Work has already started on this,” said Goel.

PNB has no immediate need to raise funds. “Our capital adequacy is over 14%.  We expect a strong growth this financial year,” said Goel. 

Following the RBI’s measure to hike the CRR by 50 basis points, Punjab National Bank has set aside Rs 7,000 crore as additional reserve requirement, Goel said.