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In an interview with BusinessLine, Ashok Chandra, MD and CEO of Punjab National Bank, noted that this surge, along with other key factors, is projected to add up to 2 percentage points to the quarter’s growth. He added that the bank has deployed its entire FCNR(B) deposits to pay down high-cost bulk deposits and certificates of deposit, which will improve net interest margins.

Here are the excerpts from his interview with BusinessLine.

Since we are in the middle of the festive season, what kind of credit growth are you anticipating?

I am expecting that at least 1–2 per cent further growth should happen in the retail, agri, and MSME sectors. Especially in core retail -- that is, housing loans, mortgage loans, vehicle loans, and education loans -- those entire areas should grow by an additional 2 per cent. Right now, the growth in this area is 16.3 per cent, but somewhere around 18 per cent growth should happen in the core retail areas.

MSME is doing very well, and for the last almost two years, we have been growing at more than 20 per cent, as the bank had started a lot of activities. I’m expecting that MSMEs should grow at around 21–22 per cent in this quarter. In the agri sector, which is the priority sector for agriculture, we are growing at 18 per cent, and the bank has started a lot of activities; there, I am expecting around 18 to 19 per cent growth.

I believe that overall growth in credit should happen in this particular quarter at around 14–15 per cent.

Have you repriced your loans following the repo rate hike by the Monetary Policy Committee?

In our bank, the policy is that the moment any rate change happens, whether upward or downward, the next working day, we pass it on to the customers. That happened in the last series of reductions which cumulatively account for 125 basis point. We had passed it to the customers the very next working day.

Similarly, in this instance, the rate hike was passed on to all accounts the very next day. We are expecting around 7 basis point improvement on account of the hike in this quarter.

Going forward, I think it will happen. As of now, the deposit rate is still elevated because if you recall, 125 bps cut had happened in the last series of reduction, but the deposit rate was still hovering above 7 per cent for a year and above -- at some point it was 7.17 per cent, in the June quarter it was 7.25 per cent. Rate on deposit was cut around 30-40 basis points as against 125 basis point reduction in repo rate.

I am expecting that in this quarter, the banking sector will continue to have the same deposit rate. Perhaps once the ALCO sits and looks into all these aspects, we’ll decide what happens next to deposit rate.

How you have deployed $2.7 billion, collected through FCNR(B)?

We have utilised the entire amount by way of shedding some high-cost bulk deposit and the CD. And for the last six months, we are not at all in this market in the CD or in the bulk deposit segment.

What kind or impact can we see on interest outgo?

You are seeing the actual impact in this quarter itself. The cost of deposit has come down, and the yield on advances has also increased. That is getting reflected in our domestic NIM, which has gone up by 10 basis point in this one quarter itself and global NIM has also gone up by 8 basis point. One quarter from any scale, it is a very good achievement. And I am very confident that given the strategy the bank has adopted, you will see a solid improvement in our overall profitability going forward into Q3 and Q4 as well.

Considering increasing volatility in the forex market, will there be any impact on the interest outgo on FCNR(B)?

We do not foresee any repayment challenges. First, these entire deposits were mobilized for a three-to-five-year period, which is a stable, long-term tenure not just for PNB, but for the banking industry as a whole. Second, we already have a swap facility with the RBI, which safeguards the principal amount, so there is absolutely no issue. Any volatility occurring over this three-to-five-year period is completely managed, even on the interest component.

Any plans for more fund mobilisation from the global market?

We have already initiated the process to raise around $1 billion through the Medium-Term Note (MTN) route. We have completed the roadshows, and all legal requirements are now in place. We are simply waiting for the right window, and we will hit the market to raise the funds as soon as the timing is appropriate.

We have also taken approval from the board for around ₹10,000 crore of infrastructure bond. But all these things require the opportunity in the market at what rate or what interest rate that is there in the market, then only we will decide.

As of now we don’t have any challenge on our liquidity front having 75 per cent the CD ratio, still we have room to grow in the credit side with the present deposit growth rate.

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