Punjab National Bank (PNB) expects more than 90% of the merged entity’s term credit customers to take advantage of the deferral option due to the current sluggish economic scenario, said CEO and CEO SS Mallikarjuna Rao. In an interview with Mithun Dasgupta, Rao also said that PNB sees no threat of losing its deposit base due to the recent interest 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 fragments:
PNB has passed on the full benefit of the recent RBI policy rate cut of 75 basis points to its borrowers backed by an external benchmark linked product of a repo linked lending rate (RLLR) related to the retail / MSME portfolio. for the merged entity linked to RLLR? What are the formats for the home loan and car loan portfolios? For home loan, about how much do EMIs get cheaper (per lakh) on a 30-year loan?
The loan portfolio of the merged entity linked to RLLR amounts to approximately 28,800 crore. The total home loan portfolio is approximately `74,500 crore and the car loan portfolio is approximately` 9,000 crore. As a result of the 75 basis points reduction in the RLLR, the EMI for home loans will be reduced by approximately `52 / month / lakh, representing approximately 7% of the EMI payable.
The bank has decided to delay payment of all installments / interest on the term loan and the working capital limit and the recovery of interest on cash credit facilities that are postponed between March 1 and May 31, following the announcement of RBI.
How large are the term loans covered by this three-month moratorium? How are EMIs changed for home and car loans?
Under the moratorium, approximately `4 lakh crore in term loans will be taken. RBI has allowed deferral, but interest would continue to be charged on the accounts. For home and car loan borrowers, extension of the repayment period will not be enough to cover the increased loan amount due to interest during the moratorium and borrowers will have to pay an increased EMI, otherwise the number of EMIs to be paid would increase depending on the size of the loan and the remaining repayment period. The deferral facility is available to all borrowers, but they also have the option of not choosing and making payments based on their cash flow.
What would be the approximate amount of the repayment deferred to the merged entity due to the moratorium on term loans?
That is currently still a matter of estimation. We expect that over 90% of our clients with a term loan will use the facility due to the current sluggish / dull economic scenario in industry and the market.
The bank has lowered its interest rates on various maturities. Since you have lowered the deposit rates for the merged entity, there is some concern that some depositors may have large private deposits
PNB’s annualized deposit growth of 9.4% as of December 31, 2019 was almost in sync with the growth of the system over the period. Also, recent changes in domestic interest rates across different maturity bands are in line with the weakening interest rate trend across the system. With a rich heritage of more than 125 years, PNB has a very strong retail franchise. Our two merging banks, OBC and United Bank of India, even have a rich franchise and we see no threat of losing our deposit base.
While RBI and the government have taken steps to increase liquidity in the market, do you see liquidity concerns due to the nationwide lockdown affecting all sectors of the economy?
The nationwide freeze may hit some sectors, such as microfinance, commercial vehicles and affordable home finance, as a result of recovery of repayments. However, measures by RBI and the Center certainly help the affected sectors. RBI measures will bring depth to the corporate bond market, especially in the shorter term. Sectors with discrepancies between assets and liabilities are likely to receive sufficient support as the system and banking system have sufficient liquidity as a result of the RBI measures.
Faced with the heat of the lockdown, the MSME sector is now benefiting from the three-month moratorium. Do you see quality tensions due to exposure to the sector in the future?
The government is aware of the problems facing the MSME sector. We are working to streamline MSME credit reassessment processes under RBI. A Covid-19 related revival package clearly identifies the steps, timetable and documentation required for the MSME categories.
What is the size of PNB’s loan book list after the merger? What kind of loan growth do you expect in the first year of operation amid the pandemic?
For starters, the bank’s total sales are around `18 lakh crore, and advances are around` 7.5 lakh crore. We are aiming for an annual growth of 8% in the advances for 2020-21, but we still have to see the full impact of the pandemic. If the impact ends in June, we are confident we can achieve credit growth of 8%.