‘Won’t hesitate lending to stressed viable MSMEs’ – Banking & Finance News

State-owned Punjab National Bank (PNB) will not hesitate lending to “viable” micro, small and medium enterprises (MSMEs) in the special mention account (SMA) category, as the Centre has said it will provide credit guarantee on such loans, MD & CEO Atul Kumar Goel tells Piyush Shukla in an interaction. MSME loans with over Rs 5 crore ticket size amounting to Rs 1,012 crore are currently in the bank’s SMA-2 doubtful debt category. Edited excerpts:

Would PNB be lending to stressed MSMEs as proposed by the government?

If a viable entity in the SMA category, which is temporarily stressed, needs credit, we will provide funds. No one will ask banks to lend to an unviable unit. The government will, in any case, provide a credit guarantee for such loans. 

Has the cost of deposits for the bank peaked at 5.08%?

The cost of deposits has, in my opinion, already peaked. But, because there is a gap between credit and deposit growth, the rate of interest on bulk deposits has increased and changed daily. The one-year retail deposit rate or rates on special deposit schemes may not change now. But rates on bulk deposits depend on liquidity and varying needs of banks and changes. 

Are we seeing a structural shift of bank deposits moving to the equity market?

No doubt the money is moving from banks to mutual funds, which has  an impact on the CASA (current account and savings account) ratio. However,  mutual funds sometimes park money in bank fixed deposits. Deposits are coming back to the bank, not entirely, but definitely in parts.

PNB’s CASA ratio has moderated to 40.1% in Q1FY25 from 41.4% last quarter. Your guidance for the full year?

We are targeting to end FY25 with a 42% CASA ratio from 40% in Q1. However, there is pressure on CASA mobilisation on account of the interest rate difference between CASA and bulk deposits. Some customers with money in savings accounts, are parking part of the money in fixed deposits, if they do not need the funds immediately. So CASA deposits are reducing but term deposits are rising. Despite these trends, we are confident of achieving a 42% CASA ratio because we have taken various initiatives including improving customer acquiring mechanisms, quality of services, enhanced call centre service, customer relationship managers services, among others.

Has the bank estimated the impact of ECL norms on the balance sheet?

We should wait for the final guidelines on expected credit loss (ECL) model for banks. Banks will have five years to meet higher provisions requirements, therefore there is no worry as such. ECL essentially takes into consideration the probability of default. To give you some perspective, in the last four years, with our underwriting skills we have sanctioned

Rs 8.32 trillion of loans, of which Rs 7.49 trillion have been  disbursed. The current outstanding loans stand at over Rs 5 trillion and the total NPAs are only Rs 2,276 crore. If This trend continues, there will not be much impact due to implementation of ECL accounting norms.  

How much of corporate loans are in the pipeline?

We have around Rs 1 trillion of corporate loans in the pipeline in various stages including those which are sanctioned, not utilised, in the discussion stage or under the new business proposal stage. There are proposals from the road sector, steel, cement, and NBFCs.

PNB was fined Rs 1.3 crore by RBI for sanctioning working capital loans to two state government entities against amounts receivable from the Centre by way of subsidies. 

What measures have you taken to counter such violations?

The RBI has already imposed a penalty and we have taken corrective actions to improve on the same and will ignore such type of financing. We will ensure that no loans are extended to companies against amounts receivable from the Centre by way of subsidies refunds, or reimbursements going ahead.