PNB expects to post a moderate profit in FY21, thanks to IBC

The bank has moderated credit growth target to 6% for FY2021. (Image: Reuters)

Public sector lender Punjab National Bank (PNB) is expecting to post a moderate profit in FY2021 due to recovery of around Rs 8,000 crore through resolution process in the third and fourth quarters, treasury gains and the receding impact of Covid-19, said SS Mallikarjuna Rao, MD and CEO of the bank. PNB on Friday had reported a net loss of Rs 697 crore in the March quarter of 2019-20.

Rao also specified that instead of higher profits, the bank would like to strengthen the balance sheet. “We don’t like higher profit, because we would like to strengthen the balance sheet during 2020-21, but we are very confident that we will be creating a better base for the bank, not only for booking moderate profits in 2020-21, but also creating a robust situation for the next financial year,” he said.

The CEO said around 30% of borrowers had availed the moratorium facility. “Around 30% retail, MSME and mid-sized corporates have opted for the moratorium, while 70% have chosen to pay,” he said.  Largest lender State Bank of India had earlier declared that 21.8% borrowers had availed moratorium. “PNB has provided 5% or Rs 142 crore against special mention account-2 (SMA-2), which would have turned non-performing assets (NPAs) on March 31,2020,” he said.

The Reserve Bank of India (RBI) had provided relief with the availing of standstill option on the status of accounts till August 2020, with a condition to provide 10% provisioning in next two quarters. Banks follow stepwise mechanism to classify loans as NPAs if a borrower does not pay within 90 days. Missing a payment after 30 days leads to a loan being classified as special mention account-1 (SMA-1). Failing to make payments for two consecutive months leads to an account being classified as SMA-2.

A loan is finally classified as NPA after missing payment more than 90 days. PNB has made total provisioning of Rs 4,629 crore in the March quarter. The bank expects provisioning pressure to reduce after the June quarter and recoveries to begin from the third quarter onwards.

Rao said, “We expect recovery of around Rs 8,000 crore from the cases which are in final stages at National Company Law Tribunal (NCLT) in the third and fourth quarters of financial year 2021.” The bank is also expecting to garner money from the sale of non-core assets. “As on today we have a lot of good real estate assets. However, we are not planning to sell anything at the discounted price,” he specified.

The bank has moderated credit growth target to 6% for FY2021. “Before the Covid-19 impact, we planned for 12% credit growth. Now, if the receding impact of Covid-19 takes place from August, we will be expecting 6% credit growth,” Rao said. The loans and advances fell 10% to `66,628 crore in the March 2020 quarter, compared with March 2019.

The bank is planning a review meeting next month after the merger with Oriental Bank of Commerce and United Bank of India. The merger had already taken effect from April 1. “We will review capital requirement of the merged entity in the board meet next month,” Rao said. On a standalone basis, capital adequacy ratio (CAR) of PNB stands at 14.14% till March. The bank also expects to improve its provisioning coverage ratio (PCR) to 80% by June, from current level of 77.79%.