Punjab National Bank: PNB building up capital for any future M&As: Sunil Mehta

India’s second-largest bank, Punjab National Bank , which posted a 12% rise in net profit to Rs 343 crore in the June quarter of 2017, has taken various measures to plug sticky loans and is gearing up for a consolidation.Speaking to Sangita Mehta, MD, Sunil Mehta , elaborates on the bank’s war room for bad loans, the setting up a special syndication cell and plans to sell non-core assets.

Edited excerpts:

Why has PNB given employees targets based on the `average’ basis instead of a quarter-end or year-end basis?

In the year-end or quarter-end targets, everyone will go for bulk business and they will end the year without keeping in mind its impact on profitability. But once they start working on an average basis, it will be mainly dependent on their customer services and how much stable business they have. On averages, it is not simple to achieve year-end targets.Also, it means people have not worked only for quarter-end results, they have worked throughout the quarter to achieve those results. Also, the government has done away with the system of MoU with all banks for business growth.

At a time when there is hardly any demand for new loans, why has PNB started a special loan syndication cell?

Special loan syndication cell is a concept we introduced recently after analysing market conditions. Nearly 6-7 banks have limitations in lending to their existing customers because of the imposition of prompt corrective action by RBI. This limits their ability to lend to their existing customers.Further, some banks have capital shortage and do not have the capital to grow their loan book. Fortunately, PNB is better placed in those two areas. So, we are targeting customers of those banks that do not have the capacity to give additional but have good customers. We are not trying to take over their business. We are going to meet the incremental requirements of their existing good customers. So, whatever space is left by PSU banks and which is taken over by private sector banks… our bank is trying to chip into that space.

The government has asked banks to raise capital by selling non-core assets. What has PNB done?

Our non-core assets are valued at Rs 10,000 crore and we are thinking of selling about Rs 1,000 crore this fiscal year. We have a lot of subsidiaries like PNB Housing Finance, PNB Gilts, and they are listed. So, even if we sell a small portion, we can get Rs 1,000 crore. We are not in distress. We are adequately capitalised in the current financial year. We are building up capital so that next year, even if mergers come, we are strong enough to absorb anything.

What are your capital-raising plans?

We have already taken approval to raise Rs 3,000 crore. We will go to market when it becomes a win-win situation to existing shareholders and add value to new shareholders. Government equity is right now 65%. So, that will get diluted due to fresh issue. It might be through QIP (qualified institutional placement) or a rights issue or an IPO. We have not asked for any additional capital from the government.We are not asking them but if the government has merger or amalgamation plans they might bring in capital on their own.

Have you identified any bank for merger?

There is nothing on the cards. But things are brewing and the Niti Aayog is working on it…there are some think tanks working on it. So, let them give us some options, we will definitely work on it.

What kind of banks will fit your acquisition plan?

Given a choice, I will definitely acquire banks which have synergy in terms of geography and business systems. The intention of the government is that there should be three or four big-sized banks like SBI. How can that happen unless you serve pan-India? So, for pan-India service, geographic distribution will be a key factor.

What are the initiatives taken by the bank for bad-loan resolution?

We have created two war rooms. One is a call centre type of set-up. They call individual borrowers and individual branches. If they see your account is going to NPA, they start taking steps to prevent slippages. They will talk to the borrower and find out the solution and work on it. The other war room is for recovery that deals with accounts that have already become NPAs. Here, we have to decide on recovery mech anism like SARFAESI or filing a case in the Debt Recovery Tribunal or frauds where we file an FIR.

What are the initiatives to recover loans through one-time settlement?

Close to Rs 20,000 crore are small advances in the doubtful category for which we have specially designed one-time settlement scheme. For loans like Rs 1 lakh, initiating legal action is of no use. So, instead of going legally, we have introduced a scheme of 50% rebate. The branch manager has been empowered to accept Rs 50,000 and give a no-due certificate.We have launched two schemes and set deadlines of September 30 and December 31 of this year.