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The Punjab National Bank (PNB) has announced additional credit facilities under the ‘PNB COVID-19 Emergency Credit Facility’ to aid the enterprises in India. CH. SS Mallikarjuna Rao, Managing Director and CEO, PNB spoke to BE’s Kuntala Sarkar.

Q. PNB has opened an emergency credit line for the MSME sector and liberalised the working capital assessment (LWCA) model for MSME borrowers. How impactful will this be? 

A. Due to the pandemic, the operating cycles of the businesses have elongated and the induction of additional fund is required for their survival. Various MSME industries/sectors are witnessing negative impact and business units are going through stressed times. In this connection, our bank is providing the following facilities to MSME borrowers to tide over the current crisis.

Firstly, we are providing an additional working capital limit (up to 25%) to existing MSME borrowers having aggregate exposure of five crore to meet their temporary liquidity mismatch due to the current pandemic under the ‘PNB Standby Line of Credit’. The bank has also made available additional credit facilities to the eligible existing borrowers under the ‘PNB COVID-19 Emergency Credit Facility (PNB-CECF)’. Under this scheme, an additional credit facility up to 10% of the existing Fund Based Working Capital limits (FBWC) with maximum amount of Rs. 100 crore is being provided to meet statutory dues, payment of salary to staff, electricity bills, rent of office etc. Further, the MSMEs, whose requirements are not covered under the above schemes or otherwise may get additional finance. The scheme is available in two variants - up to Rs. 5 crore and above Rs. 5 crore - wherein reassessment of the limits will be considered on relaxed parameters. Such initiatives have enabled MSMEs to promptly address their business continuity and remain firmly on their feet during the crisis and also enable them to move forward rapidly in its aftermath.

Q. What major sectors, according to you, have been affected the most due to the lockdown and what sort of government policies can ease the banking sector?

A. Consumer credit, retail and consumer durables, microfinance and gold loan exposures, aviation, auto and auto-ancillary, travel and hospitality, real estate and construction sectors, infrastructure, small and medium enterprises, agriculture and rural sectors are severely impacted due to the pandemic.

PNB suggests few policies to ease these sectors. The option for bringing back the ‘Bad Bank’ concept may be considered to resolve the existing legacy of stressed assets and IBA has already taken initiative in this regard. Regulatory support on asset classification and provisioning norms with forbearance period of up to nine months for stressed sectors and end user segments in post moratorium period to defaulting borrowers is needed. One Time Restructuring Window may be permitted across all businesses without reclassification of the accounts from the provisioning perspective. 

For the MSMEs, PNB recommends to increase the moratorium period for at least another four months. Last year’s ‘Accounts’ Restructuring’ scheme of the RBI may be extended to March 31, 2021. Compulsory membership limit in TReDS may be reduced to turnover of Rs. 250 crore from the existing Rs. 500 crore to enhance the reach of finance.  The MSME Association may take up with the government to focus on import substitution and enable competitive production costs where MSME units can play a major role in output and employment. Rising risk aversion against China might benefit India with many companies trying to shift production out of the country.

Q. How are your customers reacting to the 'three-month moratorium' regarding loan repayment?  

A. The response to the RBI’s regulatory package offered to the customers through the ‘three-month moratorium’ on loan repayment has been positive. As the lockdown period has resulted in mass scale stoppage of manufacturing activities across the board - including MSMEs as well as big units - it came as a welcome relief to the borrowers across all segments and sectors. Till the first week of May 2020, our bank has offered three months moratorium to 64,16,662 eligible borrowers accounts and only 31,202 eligible borrowers have not opted for the moratorium offered by the bank. In other words, 99.5% of loan customers have been provided with the regulatory relaxation package of the RBI, indicating a high degree of acceptability across all types of borrowers.

Q. It's felt that the relaxations for businesses to obtain loans might increase NPAs. How is PNB going to deal with its NPA stress in the current FY?

A. The abrupt dip in all economic activities has had several short-term impacts. With no manufacturing and limited movement of finished goods to seller markets, cash flows have been severely impacted which in turn has impacted corporate/MSME borrowers’ debt servicing capacity. The RBI has provided a three-month moratorium to all standard loan borrowers for payment of their EMI's starting from March 1, 2020 to May 31, 2020. Further, the RBI has provided that in respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period wherever granted, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under the IRAC norms.

While these guidelines have helped borrowers and banks to tide over the short-term problem of slippage of any borrowers account into NPA, the government has also started initiating steps to restart economic activities. However, a realistic assessment of the situation would show that the revival of the economic cycle would take considerable time.

Q. In the Q3 FY 20 results, the bank announced a growth of 21.4%. Is it expected to sustain this in future?

A. The standalone PNB bank has recorded an operating profit of Rs. 3,763 crore during the Q3 2020 and registered YoY growth of 21.4%. This is despite the 51.7% decline in trading profit. Excluding trading profit, the growth in operating profit is 32.8% on YoY basis. The operating profit is aided by recovery of Rs. 6,643 crore in NPA during Q3 of FY 19-20 as compared to Rs. 4,423 crore during Q3 of FY 18-19.

In December 2019, the provision coverage ratio (PCR) was at 75% and capital adequacy was at 14.4%. The economic headwinds due to the ongoing pandemic are challenges for FY 20-21. The impact on economy is expected to be short term. As the economy opens up, we expect normalcy to resume by the Dec’20 quarter. Further, with the moratorium announced by the RBI and measures being taken by the government, the effect on profitability is expected to be minimal. Additionally, the PNB after amalgamation became the second largest public sector bank of India having 11,000 plus branches and a business mix of over Rs. 18 lakh crore.

Q. During the on-going crisis, the RBI has cut the repo rate to 75 bps. What has been the PNB's decision regarding RLLR? 

A. In order to comply with RBI regulatory guidelines and to ensure quick transmission of the policy rates, all new floating rates personal or retail loans and floating rate loans to MSMEs have been linked with the external benchmark that is Repo Linked Lending Rate (RLLR). When the RBI has reduced the repo rate by 75 bps (from 5.15% to 4.40%), the benefit was transmitted to the borrowers in the form of rate reduction in RLLR from 7.80% to 7.05%. After transmission, presently the RLLR is 7.05% (Repo Rate 4.40% + Mark-up 2.65%) with effect from April 1, 2020, which is one of the lowest in the Indian banking industry.