PNB bond holdings of short maturity, less prone to rising yields: MD Goel

In a Q&A, Atul Kumar Goel says the lender has not sought any special dispensation from RBI to provide for MTM losses amid rising bond yields

Punjab National Bank’s bond portfolio will be less impacted by interest rate hikes as the lender’s exposure is skewed towards shorter duration papers, its managing director Atul Kumar Goel told Nikunj Ohri and Abhijit Lele in an interview. PNB has not sought any special dispensation from the Reserve Bank of India (RBI) to provide for mark to market (MTM) losses amid rising bond yields, Goel said. The bank has sought extension from Irdai to sell its stake in Canara HSBC OBC Life Insurance Company Ltd (CHOICE) until March 31, 2023.

With the Federal Reserve anticipating more interest rate hikes, will RBI measures be effective in stemming the impact on rupee?

The rupee has been one of the best performing Asian currencies. However, it cannot remain immune to overseas outflows from the emerging markets. RBI is ensuring that there is no extreme volatility and there is orderly movement in the rupee value. The measures that have been announced are fundamentally good to attract more inflows in debt capital, but may take some time to have an impact, as the pressure on the rupee is coming from the large sticky current account deficit, and not just capital outflows. The launch of international trade in Indian rupee will save our foreign exchange reserves and bring in more global trade partners. All these measures taken by central bank and the Government might protect the steeper fall in rupee.

Will the steps taken by RBI help in increasing non-resident dollar deposits? Do you anticipate an increase in NR dollar deposits at PNB?

The steps announced by RBI are primarily aimed at arresting the rupee deprecation through higher foreign currency inflows. The Foreign Currency Non-Resident Bank [FCNR(B)] and Non-Resident (External) Rupee deposits have been exempted from the CRR and SLR requirements. The interest ceiling on these deposits have also been dispensed away temporarily.

We have a network of 230 authorised dealer (AD) branches out of 10,098 branches in the country. Bank offers various facilities to NRI customers. With RBI’s dispensation, PNB will be able to offer higher interest rates to non-resident depositors and this will enable better inflows of NRI deposits.

How are rising bond yields affecting treasury income of PNB? Have banks sought special dispensation from RBI to provide for the losses?

The yields are expected to remain volatile in the coming months. This will largely be impacted by the movement in crude oil prices due to geopolitical tensions, the Federal Open Market Committee’s decisions, MPC’s decisions, trend in GDP growth, FPI flows, and inflation numbers, among others. Though most of the expected future rate hikes have been priced in, there will be some upward bias.

SLR AFS portfolio of the bank is skewed towards shorter duration papers which are relatively less sensitive to rate hikes.

We are targeting to keep Maturity duration of SLR AFS around 2, which indicates that the Bank’s AFS portfolio is less sensitive to rising interest rates. We have not sought any special dispensation from RBI to provide for the MTM losses.

What are your expectations on RBI’s next policy?

RBI has carried out a very balancing act by normalizing the liquidity position in a calibrated manner. The repo rates have been hiked twice towards the start of this financial year. The current repo rate is at 4.90 per cent.

CPI Inflation has remained above the RBI’s target level since January 2022. Though CPI inflation has moderated from last 2 months from peak of 7.8 per cent in April 2022, inflation is now a persistent problem globally and can deter growth. Inflation will start moderating in the second half of this financial year with new supply capacity and as impact of other measures taken by government starts unfolding. I expect RBI to hike rates in the next monetary policy meeting in August. However, further inflation data will determine the next rate hikes.

With inflation rising, there is expectation of less demand in the economy which may delay private capex and hit corporate loans. Is that a fair assessment?

Although rising inflation, currency depreciation and rising interest rates may likely have an impact on the profitability of corporate sector, the way the government is going ahead with the reforms, India will remain the fastest growing economy in the world. Our domestic consumption is our strength. The public capex outlay in the Union Budget is at around Rs 7.5 trillion which is sharp increase over the last year.  

Budget initiatives like Gatishakti driven by the seven engines of roads, railways, airports, ports, mass transport, waterways and logistics infrastructure will propel credit demand. Credit revival in capital intensive sectors augments well for economic growth as it has a trickle-down effect on other sectors as well.

With rising interest rates and weakening rupee, External Commercial Borrowings which are an important source of financing to corporates are now losing attractiveness and companies will now approach banks for credit requirement.

The economy is out of pandemic induced stagnation and I expect credit to infrastructure and corporate loans to revive in this financial year. Public investment will continue to take the lead and pump-prime the private investment and demand in this financial year.  

What is the investment required to strengthen IT systems, and join the AA system? What investments have been planned on digital front to make systems more prompt and active?

PNB is the second PSB to go live on the AA ecosystem acting as financial information provider (FIP) and financial information user (FIU). PNB has partnered with one of the known Technology Service Providers (TSP) to implement the technology stack as per the Reserve Bank Information Technology (ReBIT) guidelines on the bank’s premises. The development was completed in a record-breaking time of under 5 weeks. The solution implemented by the bank is highly scalable with capability to process large number of requests and uses very high standard of data encryption for security. We are working on multiple business use cases and collaborating with Fintech players to leverage on the AA ecosystem and offer interesting products to its customer.

What is the PNB’s future strategy for PNB Housing, and when will you reduce the stake?

PNB doesn’t have any plans to sell its stake in PNBHFL presently. PNBHFL is in the process to raise up to Rs 2,500 crores through rights issue. The amount is sufficient for growth of loan book up to FY25. With RBI’s approval, PNB intends to infuse capital up to Rs 500 crore to retain the its shareholding in the mortgage lender at 30 per cent or below but above 26 per cent. Rights issue is expected to be launched in Q3 FY23.

What is the target for sale of non-core assets? Sale of CHOICE, real estate assets, among others?

Currently PNB doesn’t have any plan for stake sale in subsidiaries. However, to comply with regulatory guidelines of IRDAI for holding of stake in two similar category insurance companies, PNB intends to divest its stake in Canara HSBC OBC Life Insurance Company Ltd (CHOICE). In principle approval from the board has been taken, and PNB has requested IRDAI for dispensation of the regulator’s guidelines for a further period of two years until March 31, 2023 for implementation of the divestment plan.

Is there a business opportunity for PNB Cards after the RBI banned credit loading in wallets by PPIs? What is the strategy, and business milestones for PNB Cards, is PNB scouting for strategic partner?

The banning of credit loading in wallets by RBI is favourable for banks, and instils the regulator's belief that banks should remain in charge of core banking activities. This is advantageous to banks as they can further accelerate card acquisition with less competition. PNB Cards and Services Limited is an extended arm of PNB’s credit card business. It will engage with all source of marketing channels and also deploy field agents to on-board customers. It will work to facilitate better customer experience by entering into aggressive merchant tie-ups and other offers.

How is PNB looking to make Regional Rural Banks (RRBs) under its wing more viable and sustainable? Are there going to be amalgamation of existing RRBs?

PNB has sponsored 9 RRBs with a network of 4613 Branches. Total business of RRBs of PNB crossed the milestone of Rs 1.88 trillion business as on March 31, 2022. Seven RRBs are in profit and thus viable and sustainable. For the remaining two our plan is to strengthen them through more capital. There is no such plan of amalgamation of existing RRBs.

When is NARCL expected to be operational? The RBI had granted approval to commence operations by June 2022?

NARCL is expected to be operational during September quarter. RBI had granted approval to commence operations by June 2022.

Has IBA approached the government for protecting present and former bank employees from investigation by probe agencies for bonafide decisions?

It is essential that the norms laid out in staff accountability be regularly scrutinized to protect employees for their bonafide actions. This will instill confidence among bankers, enabling them to take faster credit decision. In the current scenario, the economy is in need of urgent credit boost, removing fear psychosis from bad loans in bankers will eradicate the fear of taking business decisions thus channelizing credit flows.