Credit rating agencies need to improve their due diligence process, according to Sunil Mehta, MD & CEO of Punjab National Bank (PNB).
In a free-wheeling interaction on Monday, Mr. Mehta admitted that the downgrades effected by rating firms in the wake of Infrastructure Leasing & Financial Services Limited (IL&FS) imbroglio ‘had put a question mark on the rating agencies.’
The complete magnitude of the problem was still not known and being worked out, he said. “We cannot simply rely on the rating. We have to do our due diligence,” he added.
He said that PNB had the best rating system, created in-house. To a query on the impact of IL&FS on PNB, he said that it had the least impact on the bank. “We don’t have much exposure to IL&FS,” he added. For the purpose of raising capital, credit rating was required. However, credit rating agencies needed improvement in their due diligence process.
Queried on the lessons learnt from the Nirav Modi episode, he said that the objective was to mitigate the people-related risk in foreign exchange operations. In addition to integrating the SWIFT system with the core banking system, the bank had now put in place a three-layer verification process across the branch, trade finance centre and the SWIFT, he said.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is an internationally-recognised identification code for banks around the world. SWIFT codes are most commonly used for international wire transfers.
NPA recovery
To a specific question on whether the bank could come under the RBI’s Prompt Corrective Action (PCA) framework that places restrictions on a bank’s operations depending on its performance, Mr. Mehta asserted, “Not at all.” In this context, he pointed out to the capital infusion of ₹8,247 crore by the government, so far this year, into the bank.
The bank, he said, hoped to increase the cash recovery of NPAs (non-performing assets) by another ₹2,500 crore, from the target of ₹17,500 crore fixed for the current fiscal year. This, he said, could be possible due to the resolution of cases before the NCLT (National Company Law Tribunal).
In the first two quarters ended September, the bank, he said, had recovered NPAs to the tune of more than ₹13,000 crore. Of this, about ₹5,000 crore had come in the second quarter, he added. Mr. Mehta said that the credit growth for the quarter ended September was 13.8%. Domestic deposits grew 9.8%. Stating that the asset quality of the bank had improved, he pointed out to the reduction in risk weight density to 55% for the June quarter. “This would be still better in the September quarter,” he added.
On the sale of non-core assets, Mr. Mehta insisted that it had been on the agenda for the last two years. PNB sold 6% in its housing finance arm in November 2017 much before the alleged fraud committed by Mr. Modi came to light. The bank, he said, was going as per its original plan vis-a-vis sale of non-core assets and there was no acceleration in the sale.
Commenting on closure of loss-making branches, he said that they had been given an opportunity to improve their performance. Eventually, 38 had been closed down and some ATMs shifted in line with the rationalisation plan.
