Punjab National Bank (PNB), India’s second biggest lender, has been through tough times ever since the Nirav Modi fraud was unearthed. It reported the biggest-ever loss in India’s banking history during the fourth quarter. Managing director and CEO Sunil Mehta discusses the way forward. Edited excerpts:
What has been the impact of the Nirav Modi scam on the bank?
Despite all the turbulence in the last two-three months, the bank has maintained the confidence of the customers. That is reflected in the numbers for March 31. We have grown better than the industry even in credit disbursal. Our credit growth was 9.8%. If you see our deposits, we have seen a growth of 6.2% and added roughly fresh savings bank deposits of ₹10,000 crore during this financial year. Customer confidence and sentiments are totally intact, which is reflected in our quarterly numbers.
You clocked the biggest loss in banking history...
All these problems have created higher NPAs (non-performing assets). That is why we have shown higher losses. The entire ₹14,000-crore problem (related to Nirav Modi scam), we have recognised in the balance sheet as on March 31. All these will provide us [with] a big kitty. So, we can bounce back if we go for recovery. We have taken recovery as a major priority for the next two quarters. It has already started yielding results. Last year, our total cash recovery was to the tune of ₹5,000 crore. This year, in the first two months itself, we have reached recovery of ₹4,560 crore, almost equal to the last year figure. If you factor in the remaining 10 months, we can achieve ₹25,000 crore. On a conservative side, we have estimated ₹20,000 crore of recovery. With these kinds of recoveries, we can quickly bounce back.
How confident are you of recovering the money in the Nirav Modi case?
It is difficult to quantify. Enforcement Directorate (ED) has seized assets worth ₹6,000 crore. We would get to know how much can be recovered, when we put it on sale. More than recovery, the message to bank employees and corporates is very strong ... that unethical behaviour won’t be tolerated and we will come down heavily. In this particular case, CBI and ED got into action immediately and the government’s Fugitive Bill is also sending a strong message to corporates that even if you want to run away with the money to other country, you will not be able to live your life peaceful y.
There is speculation that PNB would slip into the Reserve Bank of India’s (RBI) prompt corrective action...
The decision on prompt corrective action measure is the prerogative of the RBI and I cannot comment on it. We are the second biggest lender of the country. Everybody would like this institution to keep performing, because banking is the backbone of the economy. Even in the U.S., the government bailed out the private banks during the financial crisis and they bounced back and the economy is doing well now.
In India, banking is dominated by public sector banks and they are owned by government. I don’t think banking will see a setback. We have the capacity to absorb the shock in this financial year, and bounce back to black. The bank’s cost of deposit is lowest in the industry, with current account and savings account (CASA) accounting for 44%. We have a very good retail and priority sector portfolio which is not affected by current happening and the non performing asset is low and returns have been okay in this. We also have non-crore assets which can be tapped for resources. We have raised about ₹12,000 crore last year, ₹5,000 crore coming from qualified institutional placement, ₹5,500 crore from government and ₹1,300 crore from sale of small stake in our housing finance arm.
What are the corrective measures you have implemented?
Every threat comes out with an opportunity. So, we have utilised this threat to improve our system and processes. Now, we have integrated the SWIFT system with CBS (core banking solutions) well before the April 31 deadline prescribed by the RBI. Another major improvement we have undertaken is ... all our operations were earlier going through branches directly ... now we have created a centralised back office for trade finance. So, 100% trade finance such as letter of credit and other transactions will pass through trade office.
So, it will be originated by a branch and processed through back office and even before the money is being remitted outside, it would be rechecked and third level authentication would also take place. We have put sufficient level of checks and balances so that these incidents don’t take place in the future.
We have learned a lesson, and we have implemented the correction. We are going to implement the same thing for our credit processes also. Earlier, we depended only on branch head. Now, we are segmenting it. Sourcing would be done by branches and then it goes through a process centre. We will be monitoring, and we have created a separate vertical called stressed assets management vertical. So, all goes under different verticals. This is a people’s risk and it is everywhere. Suppose there is a very good airline. If a pilot decides to nosedive an aircraft, nobody can do anything. That is the people risk. Accidents happen in life. People risk is always there whatever organisation may be like army or security forces or banking sector. It is about taking corrective actions and getting back to normal.
