We are at an advanced stage of talks for stake sale in PNB Housing Finance: Sunil Mehta, PNB

Sunil Mehta, Chairman, Punjab National Bank, talks about his expectations from the new governor, stake sales of PNB Housing Finance and Sashakt program during an interview with Swati Khandelwal, Zee Business. Excerpts: 

Banking sector has been through major ups and downs in the last 2-3 years and it seems that things are returning back to its normal. What are your expectations from the new RBI governor?
First, I would like to answer your question about the stability situation. There is no doubt that we, the banking sector, has gone through one of the most difficult periods of the financial market in the last 3-4 years. But, situations are coming back to its normal and you will get a chance to see the transformational changes in the banking sector in the next few years.

In fact, the positive results/outcomes of the ongoing work will be visible in the next 2-3 years. 

Apart from this, the new Governor of the Reserve Bank of India will play a prominent role in this transformation. He will transform those initiatives into action and then we will be able to see the positive benefits of its implementation. He has started going deep into the issues that are being faced by the banks and I am sure that he will address them in the next few weeks or months. 

Sunil Mehta, Chairman, Punjab National Bank, picture:

Name two-three things of the banking sector that require the immediate attention of the regulator like Prompt Corrective Action (PCA) norms to NBFCs liquidity?
The two issues, PCA and NBFC, were being discussed with the Reserve Bank of India and I am very happy to inform you that the governor has focused on these two-three important issues. I am sure that there will be a decision that will be made in line with whatsoever the market conditions are and what is the strength of these banks.

These banks have worked to improve their conditions – by controlling expenses and increased their capital - since they were sent under RBI’s PCA framework. The initiatives taken to preserve the capital will bring positive results and that’s why I feel that some of them should be brought out of the PCA. 

What is your opinion on the government’s request to RBI where it asked the regulator to provide certain relaxation in the PCA framework to banks as they are ready to be out of the framework? 
I think, one should have to look at the holistic circumstances of everything and if the circumstances have changed since they were sent into PCA - a year and a half ago - then it makes a sense for the Reserve Bank to revisit those and look upon the changes that were required within those banks to make sure that they were doing right thing to preserve capital despite certain limits. I feel, that if the required internal changes have been met then it is a time to revisit them and relocate them. It is a dynamic situation and you will miss on the opportunities by overlooking the ongoing changes in the financial market.  

Has the NBFC issue and liquidity issues have eased off by now? 
It was a period when a perception related to a liquidity crisis or liquidity situation was created in the market. A lot of water has flown under the bridge since then but needed corrective actions have been taken by concerned entities. Apart from this, there was a different issue related to asset-liability mismatch and most of the responsible NBFCs have looked at their portfolio and I feel, if needed, they will take the course correction actions now. 

Let’s talk about Punjab National Bank, second largest public-sector bank (PSB) of India, that has faced the burden of NPAs and scams. What is the situation of the bank and what is your outlook on its future? 
When a crisis hits it also brings opportunities for people to take whatever action is required. And, you must not miss on the opportunity of doing good when a crisis hits you. I want to give credit to the entire PNB team, the people who are working, the 70,000 employees, who took a big reputational hit when that unfortunate incident took place earlier this year due to fraud. But the results of the work that they have done in this period, as the improvement on their risk processes, internal control, use of technology to create a robust system and rectifying the credit processes, will be visible.

So, I would say that you will find a much better improved financial performance from the last quarter of FY19. In addition, on an operating basis, you already see that the trend line is on an upswing. So, I am very much encouraged by the work that has been done and I am quite sure that the resolve that has been shown by the team there is that they will make it a much stronger bank as we move ahead. 

Talks on consolidation of PSBs is in the air - like consolidation of SBI and its group as well as Dena Bank, Bank of Baroda and Vijaya Bank – and reports are there that the government is planning to consolidate few more banks and PNB’s name is in the list. What is your take on it?
As far as, the board of PNB is concerned that we don’t have any information on the fact that we are one of the candidates for the merger or consolidation. Smiling, you will get to know about the same at the same time, when we will be informed about the same and that’s why I will not speculate on the matter. 

Let’s talk about the financial performance of PNB as it was said that you want to bring your NPA levels below 6 per cent. Are you on track, right now?
NPAs is a historic legacy and we are attempting to bring it down by churning our credit process to improve it. One important aspect that would lead to the way that we are doing is risk-adjusted returns. In the process, we look on the return on capital while offering big loans and then we have a dynamic risk rating process so that we are constantly reviewing the ratings of the borrower to make sure that we are adjusting the pricing of those and keeping a vigilant eye on the credits that have been given, it can be termed as the post-sanction scrutiny.

These steps will recede the trend line of the new NPAs. In the case of the old ones, you would have seen that our Provisioning Coverage Ratio (PCR) has gone up dramatically. So, I think the important thing is that to take care of what was there in the past and make sure that we don’t repeat the same mistakes as we did in the past. 

As part of restructuring you have talked on the non-core assets, where you were working, and I think it is an ongoing process. Update us specifically on PNB Housing Finance and PNB MetLife and by when the process will be completed?
We are going in line with the announcement of the bank, where it said that we will look at all our non-core assets basically to shore up our capital. The PNB Housing process is on and it is pretty much what you have heard in the marketplace that the process will go to a logical end. And, hopefully by early January or February, we will have non-binding bids and even in the latter part of the year and then we will take a call on it. 

The expected amount that can be raised through this process?
PNB Housing is a listed entity and thus I will refrain from commenting on which way the pricing moves but we can’t give any projection as it will fix the price on that but will try to maximise it. However, we will have to be realistic as to where the market and the bids from the potential buyers. 

This means that you will like to close the process in this financial year itself. 
Definitely.  

What about the land passes/real estate?
The work is in progress and things have already been done, and we have done with whatsoever pieces that were required to be sold and there were certain that required some approvals and that work is in the process. 

What is your outlook on credit growth?
Swati, you have raised a very important point in terms of growth and the banks should play an important role to felicitate the growth in the country. So, it is right that there is a slowdown in the credit growth, particularly in the corporate sector. But I think that the important thing is that going forward from here you will find much more corporate growth coming as the capacity is getting fully utilised there will a requirement for more capacities to be created.

So, in many sectors, we have created access to capacities over time. Those access capacities if you look at the power sector than they say that in next 2-3 years, we will come back to where they will need more requirement of the investment in the power sector and the access capacities that have been created will get fully utilised. There is a lot of investment that is taking place in the road sector, so it is another indicator of what is happening.

You should also appreciate that we had a huge amount of stressed assets which has been by now streamlines and now, investors are procuring it, like steel. So, the factories those were in financial trouble will come back. Similarly, manufacturing is also a sector that will need expansion when where capacities will come to a point. 

You feel that things will start changing from next quarter or year.
I would say that the old stressed assets will start getting acquired in the next 6-12 months, which will bring back the confidence and sentiments. I already see the signs where the sentiment is improving from where we were standing 6-12 months back. 

You had set a recovery target of about Rs22,000 crore this financial year and have already recovered around Rs13,000 crore. Do you think that you will be able to recover the remaining part by end of this FY2019?
I am very confident and will be able to recover it by end of this financial year. 

Any update on program Sashakt? Are banks really getting Sashakt through it?
It is a well-timed question. We have recommended four-five measures under the project Sashakt, and Inter-Creditor Agreement (ICA) framework was one of them. And, I am happy to inform you that IBA (Indian Banks' Association), on December 14, has written to all 34 banks and NBFCs, the signatories of ICA, that its framework is ready for implementation. This means that one important building block is ready.  

Secondly, Sashakt India Asset Management Limited has been incorporated and we have started meeting with investors and we have our last meeting in SBI’s office. The meeting was attended by global and domestic investors and we are working on this platform too and you will hear little more about it in the next few weeks. 

My next question is related to governance. Questions were raised on the governance boards of RBI as well as the banks. What is your view on governance as we have reached a stage where accountability is a necessity? 
This question relates to an important section of the Sashakt report on governance. I think governance has become one of the most important bedrock - not only for the banks but for the complete ecosystem – to make sure that we have sustainable growth.

For instance, any company with less governance facilities fails to stand strong in the market. Thus, it, governance, should be implemented effectively and the fiduciary responsibility of the board members is enormous. And, you will see that that element become exceptionally important with growth. Talking about banks, I am in complete agreement that whether it is a private sector bank or public-sector banks, we should make sure that the governance structures are appropriate and functioning. 

There were talks of recapitalisation and its first tranche has been completed and there are talks about the second tranche. Are you hopeful about it?
I think that the banks should eventually stand up of their own and this is a bottom line. I feel that the government will stand by its commitment for this financial year taking the current situation into account. Post recapitalisation the banks should take the responsibility to use it, the fund, in a judicious manner. And, they should reorient their strategy to make sure that they get the maximum return on the fund that has been provided and how to build themselves from there. 

What is your expectation from the regulator? Provide a few important points that the regulator should look on to without any delays to rescue to banking sector?
I think that the important thing is that there is a very good communication has been already set in motion. So, whatsoever the issues that we face are readily brought into their attention and those can be a course correction, or feedback can be given to the banks on what needs to be done. 

The second important issue is that whatever, over the last 2-3 years, that was required to be done in terms of the way we were lending or the risk-practices that we had has been changed and now we need to recalibrate those in line with the situation outside. The market volatility is exceptional, and we need to recognise that. 

The third thing is that the entire risks being faced by the banking system are also changing dramatically. For instance, elements of cyber security where we should ensure that the data is very well protected. The ongoing volatility, trade war and protectionism will throw a new challenge towards us and we should be ready to face them. 

The fourth thing is, how we create a regulatory architecture or infrastructure that is in line with the market changes as we are supposed to compete with the global financial players. Thus, we will need an enabler so that we can increase the size of these banks and make then competent to change with the market conditions. 

We are supposed to do a lot to meet the challenges and I think that it will be based on a partnership between the regulators and the whom they regulate. 

Any comment on the interest rate as inflation has been kept under control?
I will make two comments on it and they are
I.    The inflation is benign, so I am sure that the Reserve Bank will revisit as to what should be the outlook on the interest rates.
II.    More importantly, for the Indian banking system, we need to take a close look on the debt markets, as our entire debt market it very shallow and we need to look at how do we can create depth in the debt market and asset mobility also. 

We have also recommended the development of an asset trading platform under the Sashakt project. Under it, we will have to work to introduce flexibility in our interest rate structure, which is inflexible at present, in line with the market so that we can be globally competitive and the industry can take advantage of it.