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| Edited By: Swati Khandelwal |Source: DNA |Updated: Jan 01, 2019, 10:57 AM IST
Sunil Mehta, chairman, Punjab National Bank, in an interview with Swati Khandelwal of Zee Business, talks about stake sale in PNB Housing Finance, Sashakt programme, expectations from the regulator and the industry scenario.
It was a period when a perception related to a liquidity crisis or liquidity situation was created in the market. A lot of water has flown down the bridge since then, but required corrective actions have been taken by concerned entities. Apart from this, there was a different issue related to asset-liability mismatch, and most of the responsible NBFCs (non-banking finance companies) have looked at their portfolio and I feel, if needed, they will take the course correction actions now.
When a crisis hits, it also brings opportunities for people to take whatever action is required. I want to give credit to the entire PNB team, the people who are working, the 70,000 employees, who took a big reputational hit when that unfortunate incident took place earlier this year due to fraud. But the results of the work that they have done in this period, the improvement in their risk processes, internal control, use of technology to create a robust system and rectifying the credit processes, will be visible. You will find a much better improved financial performance from the last quarter of fiscal 2019. In addition, on an operating basis, you already see that the trend line is on an upswing. So I am very much encouraged by the work that has been done, and am quite sure that the resolve that has been shown by the team is that they will make it a much stronger bank as we move ahead.
As far as the Board of PNB is concerned, we don’t have any information that we are one of the candidates for the merger or consolidation. You will get to know about the same at the same time when we will be informed about it, and that’s why I will not speculate on the matter.
NPAs is a historic legacy and we are attempting to bring it down by churning our credit process to improve it. One important aspect that would lead to the way that we are doing is risk-adjusted returns. In the process, we look at the return on capital while offering big loans and then we have a dynamic risk rating process so that we are constantly reviewing the ratings of the borrower to make sure that we are adjusting the pricing of those and keeping a vigilant eye on the credits that have been given; it can be termed as the post-sanction scrutiny. These steps will recede the trend line of the new NPAs. In the case of the old ones, you would have seen that our provisioning coverage ratio has gone up dramatically. So I think the important thing is that to take care of what was there in the past and make sure that we don’t repeat the same mistakes.
We are going in line with the announcement of the bank, where it said that we will look at all our non-core assets, basically to shore up our capital. The PNB Housing process is on and it is pretty much what you have heard in the marketplace that the process will go to a logical end. And, hopefully by early January or February, we will have non-binding bids and even in the latter part of the year and then we will take a call on it.
Definitely.
The work is in progress and things have already been done; and we have done with whatsoever pieces that were required to be sold, and there were certain that required some approvals and that work is in the process.
Going forward, you will find much more corporate growth coming. As the capacity is getting fully utilised, there will be a requirement for more capacities to be created. There is a lot of investment that is taking place in the road sector, so it is another indicator of what is happening. You should also appreciate that we had a huge amount of stressed assets which has been by now streamlined, and now investors are procuring it, like steel. So the factories which were in financial trouble will come back. Similarly, manufacturing is also a sector that will need expansion.
I would say that the old stressed assets will start getting acquired in the next six to twelve months, which will bring back the confidence and sentiment. I already see the signs where the sentiment is improving from where we were standing six to twelve months back.
We have recommended four-five measures under the project Sashakt, and Inter-Creditor Agreement framework was one of them. Indian Banks’ Association, on December 14, has written to all 34 banks and NBFCs, the signatories of ICA, that its framework is ready for implementation. This means that one important building block is ready. Secondly, Sashakt India Asset Management Ltd has been incorporated, and we have started meeting with investors; we had our last meeting in SBI office. The meeting was attended by global and domestic investors and we are working on this platform too, and you will hear little more about it in the next few weeks.
I think that the important thing is that there is a very good communication has been already set in motion. So, whatsoever the issues that we face are readily brought to their attention and those can be a course correction, or feedback can be given to the banks on what needs to be done. The second important issue is that whatever over the last two-three years was required to be done in terms of the way we were lending or the risk-practices, has been changed, and now we need to recalibrate those in line with the situation outside. The market volatility is exceptional, and we need to recognise that. The third thing is that the entire risks being faced by the banking system are also changing dramatically. For instance, elements of cybersecurity where we should ensure that the data is very well protected. The ongoing volatility, trade war and protectionism will throw a new challenge towards us and we should be ready to face them. The fourth thing is, how we create a regulatory architecture or infrastructure that is in line with the market changes as we are supposed to compete with the global financial players. Thus, we will need an enabler so that we can increase the size of these banks and make them competent to change with the market conditions. We are supposed to do a lot to meet the challenges and I think that it will be based on a partnership between the regulators and whom they regulate.
The inflation is benign, so I am sure that the Reserve Bank will revisit as to what should be the outlook on the interest rates. More importantly, for the Indian banking system, we need to take a close look on the debt markets, as our entire debt market is very shallow and we need to look at how do we can create depth in the debt market and asset mobility also. We have also recommended the development of an asset trading platform under the Sashakt project. Under it, we will have to work to introduce flexibility in our interest rate structure, which is inflexible at present, in line with the market so that we can be globally competitive and the industry can take advantage of it.
