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PNB expects retail slippages to moderate in Q2, Q3 and MSME by Q4

As operating expenditure for the bank declined by around 8.5 percent, SS Mallikarjuna Rao, MD and CEO at PNB said that they have identified 534 branches for closure and up to June they have already closed 375, and overall by December they would close 1000 branches.

Punjab National Bank is on the radar on the back of their first-quarter earnings. The control over the bank's operating expense and provisions lead to PAT coming in above estimates despite elevated slippages.
To discuss the earnings and business outlook in detail, CNBC-TV18 interviewed SS Mallikarjuna Rao, MD and CEO at PNB. "The COVID-19 restructured loans for the bank are up 107 percent quarter on quarter but could it get worse," Mallikarjuna Rao said.
"One could expect another restructuring of Rs 1,500-2,000 crore going ahead and not more than that because collections have improved in the month of June and July and we don’t see any reasons for more restructuring in the days to come," Rao said.
On SMA-2 loans, he said, “Actually Rs 12,800 crore is SMA-2 above Rs 5 crore, which contains Rs 7,000 crore of two accounts. So, I am not very perturbed with SMA-2 loans above Rs 5 crore even as of today and if one were to look at less than Rs 5 crore as of today it is around Rs 8,000 crore as of June, and as of July, it has come down to Rs 6,000 crore."
“Above Rs 5 crore is not a big area of concern because we have good oversight of that because of improvement in collections in June and July. The SMA-2 has drastically gone down. Otherwise, it was very high in months of March, April and May," he added.
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As operating expenditure for the bank declined by around 8.5 percent, Mallikarjuna Rao said that they have identified 534 branches for closure and up to June they have already closed 375, and overall by December they would close 1000 branches.
“When I say close, it is not with negative intent, it is only rationalisation of branches with merger and license will be used for opening branches elsewhere where we are still unbanked, particularly southern and western part of the country. This has brought about a reduction in operating costs,” he added.
Slippages for the bank stand at over Rs 10,000 crore and are elevated. Mallikarjuna Rao said out of the Rs 10,000 crore, the actually slippages are only Rs 8000 crore because the remaining Rs 1,700 to Rs 2,000 crore is the existing NPA increase. So the slippage of Rs 8000 crore mainly comes from retail and MSME.
However, retail has already picked up and so he is not expecting any retail accretion in next quarter. "On the contrary, Q2, Q3 expect retail to moderate down and recoveries will also improve and so overall NPAs will go down. In MSME, we expect stress to remain for some more time although we do not expect further increase and expect it to moderate down by Q4. So, slippages for the next three quarters will be moderated," he added.
Talking about credit growth, he said that it has been muted. "On corporate, it has been negative. Going forward, we expect the growth to be much better in September and December quarters," Rao said.
For the entire interview, watch the accompanying video