Over 90% of our term loan customers may avail EMI deferment facility: Mallikarjuna Rao, MD & CEO, Punjab National Bank

Punjab National Bank (PNB) expects more than 90% of the term loan customers of the merged entity to avail the facility of deferment of instalments due to the current sluggish economic scenario, managing director and CEO SS Mallikarjuna Rao said. In an interview with Mithun Dasgupta, Rao also said PNB does not see a threat of losing its deposit base due to the recent rate cuts, as the bank — along with the two merged lenders, Oriental Bank of Commerce and United Bank of India — has a strong retail franchise. Edited excerpts:

PNB has passed on the full benefit of the recent RBI policy rate cut of 75 basis points to its borrowers covered under external benchmark linked product of repo linked lending rate (RLLR) in respect of retail/MSME portfolio.What is the total loan portfolio size for the merged entity linked to RLLR? What are the sizes for the home and auto loans portfolios? For home loan, roughly by how much do EMIs get cheaper (per lakh) on a 30-year loan?

The loan portfolio of the amalgamated entity linked to RLLR is around `28,800 crore. The total home loan portfolio is around `74,500 crore and the auto loan portfolio is around `9,000 crore. Due to the 75 bps cut in RLLR, the EMI for housing loan will be reduced by around `52/month/lakh, which translates to approximately 7% of EMI payable.
The bank has decided to defer payment of all instalments/interest on term loan and working capital limit, and recovery of interests on cash credit facilities due between March 1 and May 31, after RBI’s announcement.

What is the size of term loans which come under this three-month moratorium? How will EMIs be changed for home and auto loans?

Around `4 lakh crore of term loans will be impacted under the moratorium. RBI has permitted deferment of instalments, but interest would continue to be levied on the accounts. For home and auto loan borrowers, extension of repayment period will not be sufficient to cover the increased loan amount due to application of interest during the moratorium period and the borrowers will have to pay an increased EMI or the number of EMIs required to be paid would increase depending upon the quantum of loan and remaining repayment period. The deferment facility is available to all borrowers, but they also have the choice to not opt for it and make payments based on their cash flow.

What could be the approximate quantum of repayment getting deferred for the merged entity due to the moratorium on term loans?

That is still is a matter of estimation at this point of time. We expect more than 90% of our term loan customers to avail the facility due to the current sluggish/dull economic scenario in the industry and market.

The bank has reduced its term deposit rates in various maturities. As you have slashed the deposit rates for the merged entity, is there any concern that it may lose some depositors to large private
sector banks?

PNB’s deposit growth of 9.4% year-on-year as of December 31, 2019, was almost in sync with the system’s growth during the period. Also, the recent changes in the domestic rates in different maturity buckets is in alignment with the softening interest rate trend across the system. PNB, with its rich legacy of over 125 years, has a very strong retail franchise. In fact, our two amalgamating banks, OBC and United Bank of India, also have a rich franchise and we don’t see a threat of losing our deposit base.

Though RBI and the government have taken steps to boost liquidity in the market, do you see any concern over liquidity due to the nationwide lockdown affecting all sectors of the economy?

Due to the nationwide lockdown, some sectors like microfinance, commercial vehicles and affordable housing finance may be affected due to collection of repayments. However, measures taken by RBI and the Centre are certainly helping the affected sectors. Steps taken by RBI will bring depth in the corporate bond market, especially in the shorter duration. Sectors having asset-liability mismatches are likely to get adequate support, considering the fact that the system and the banking system have adequate liquidity due to the RBI measures.

The MSME sector is facing the heat of the lockdown and now has the benefit of the three-month moratorium. Do you see any asset quality stress from exposure to the sector going ahead?

The government is cognizant of the issues faced by the MSME sector. We are working to streamline processes for reassessment of MSME credit under RBI. A Covid-19-related revival package clearly identifies the steps, time frame and documentation required for the MSME categories.

What is the loan book size of PNB after the merger? What kind of loan growth are you expecting in the first year of operation amid the pandemic?

To start with, the total business of the bank is around `18 lakh crore, and advances are around `7.5 lakh crore. We are targeting an 8% y-o-y growth in advances for 2020-21, but we are yet to see the full impact of the pandemic. If the impact ends by June, we are confident we can clock an 8% credit growth.