Punjab National Bank (PNB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Punjab National Bank 2Q FY '21 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bhavik Shah from Batlivala & Karani. Thank you, and over to you, sir.

Thanks, operator. Good afternoon, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to Punjab National Bank 2Q FY '21 Post Results Conference Call. We have with us today the management of Punjab National Bank represented by Mr. S. S. Mallikarjuna Rao, MD and CEO; Dr. R.K. Yaduvanshi, Executive Director; Mr. Sanjay Kumar, Executive Director; Mr. Vijay Dube, Executive Director; Mr. A. K. Azad, Executive Director; and other senior officials. I would now request MD and CEO, sir, to start the call with his opening remarks on the 2Q FY '21 results, post which, we will start the Q&A session. Over to you, sir.

Right. Thank you very much. And before I start, a small correction, Dr. R. K. Yaduvanshi has demitted his office on 8th of October, so we have 3 executive directors, Mr. Sanjay Kumar, Mr. Dube and Mr. Azad, along with me, okay? With respect to the results declared for Punjab National Bank for the Q2, the global business of the bank stood at INR 1,786,670 crore with a year-on-year growth of 1.06%. Global deposits of the bank grew by 1.37% to INR 1,069,747 crores. Domestic CASA share improved by 253 basis points year-on-year to 44.10% in September '20. CASA deposits grew 7.01% on a year-on-year basis to INR 459,477 crores in September '20. Savings deposits grew by 9.05%. Here, what I would like to drive away the point for you all is that when we are making the comparison of year-on-year, the notional value of this summary of all the 3 banks in the earlier years we have taken because those banks were not merged earlier. Suppose we are comparing with the September 2019 figure, the figures of all the 3 banks were added and accordingly comparison has taken place to have some element of understanding for the year-on-year comparison. So global credit grew by 0.59% year-on-year to INR 716,924 crores. RAM has grown by 5.73% year-on-year and retail credit has grown by 3.85%, of which housing loan has grown by 9.77%. Capital adequacy ratio stood at 12.84% in September '20, an improvement from 12.63% in June 2020, well above the regulatory requirement. Operating profit grew by 7.1% year-on-year to INR 5,675 crores. Net profit for the quarter stood at INR 621 crores as on September '20 as against a net profit of INR 308 crores sequentially in Q1 and INR 757 crores as on June '20, June -- sorry, as on September '19, which is the notional total of all the 3 banks. Global NIM improved to 3.21% in Q2 FY '21 from 2.5% in Q1 FY '21 and 2.58% in Q2 FY '20. Net NPA stood at 4.75% in September improved by 64 basis points from June '20. Provision Coverage Ratio improved by 225 basis points to 83% as on September '20. With respect to domestic, deposits increase, it is 0.88%. Domestic advances have increased by 0.52%. Domestic business has increased by 0.73%. And agriculture deposit -- advances grew 12.39%. MSME advances grew by 1.56%. With respect to regulatory requirement of priority sector and all other things, we have achieved the targets. Related to profitability, the net interest income has grown by 29.3% to INR 8,393 crores in Q2 FY '21. Operating profit grew by 4.9%. With respect to efficiency ratios, yield on advances has grown by 8.09%. Cost of deposits has come down to 4.48% from 5.34%. Cost to income ratio declined to 47.87% from 49.41%. Gross net NPA stood at 13.43%. And Provision Coverage Ratio without TWO improved to 67.90%. Credit costs stood at 2.27%. These are the main highlights. And other than that, we have given a lot of disclosure in the presentation what we have published in our corporate website. You must have gone through. We have given the details related to COVID, details related to moratorium and details related to the credit profile, asset quality. All other figures are available in the presentation. So I'll be very happy -- we all team will be very happy to, what you call, take your questions now onwards.

[Operator Instructions] First question is from the line of Rakesh Kumar from Systematix Shares.

Yes, sir. Just few questions. Firstly, what is the, like, correction efficiency for September and October month for entire loan book?

What did you say? Again, can you repeat? What is it?

Sir, collection efficiency for entire loan book, how much it is for September month and October month?

So when you say collection efficiency, are you restricting to NPA or even standard?

No. So for the standard loans, like whatever demand we have built for our borrowers. And how much we have collected out of that demand from our borrowers in September month and October month? And from the stand-alone?

Okay. It is -- I need to check out the details exactly, but there has been lot of, what you call, improvement. If you look at the moratorium piece what we had indicated to you earlier at 20% where we have considered the people who have taken moratorium, when they have paid 2 installments or more. Now we have identified the moratorium at 38.2% -- 38.92% where the installments are trending for more than 3. So if you look at, there has been a very high collection, which has come in retail and SME segments. But if you're looking at a percentage in terms of the demand and recovery, I'll provide the details. It has been better in September, but much better in October.

Okay. And what would be the proportion of our total loan against which we have not collected anything during the moratorium time or maybe during the September time -- September month?

No, up to September, 25% of the moratorium profile, what is available to you, not a single installment is received.

Up to 25% of the loan?

Moratorium piece, what we have published to you.

Okay.

That is 38.92% we have given, INR 239,000 crores.

Correct, correct, correct.

So in that, 20% -- 25% of the component, up to 30th of September, I'm indicating to you, that not a single installment is received.

Okay.

Okay? That means roughly, it comes to INR 60,000 crores. Whereas in that INR 60,000 crores again, we have received the installments. Now it has come down to INR 48,000 crores.

Okay.

So it is going to continue. That's why I said October recovery has been much better. And the component of outstanding, which would become NPA, but for the Supreme Court judgment is INR 3,400 crores. That also we have indicated in our, what you call, presentation.

Got it. And sir, what is our own estimate on restructuring and slippage in the coming quarter, in December quarter?

Slippage, we will -- we still stand by the estimate what we had given last time. Overall for the year, it will be around INR 10,000 crores, maximum.

Okay. Gross slippage?

Gross slippage. If you look at currently, the slippage for the, what you call, fresh slippage is around -- INR 4,384 crores is the fresh addition you must have observed at the end of September for the half year.

Correct. But in the second half...

So another INR 5,000 crores...

Okay, but in the second half, we are...

Second half, I'm expecting around INR 5,600 crores, INR 5,700 crores. So overall, it will be not be more than INR 10,000 crores as far as the slippage is concerned. Now coming to restructuring estimate, originally in the August when the circular came, we estimated at around INR 40,000 crores overall, including the corporate book. But surprisingly, we have not received much of a request as far as restructuring is concerned. As on today, if you look at, by September, we have done restructuring of retail and MSME together only for INR 42 crores. And further, we have INR 32 crores amount value accounts for received at our end for restructuring in terms of retail and MSME. In terms of corporate, 15 accounts, we have received the request amounting to INR 2,022 crores as on today. Now if you compare with the SMA2 figure, what we have published of INR 19,000 crores, which comprises roughly INR 6,600 crores in MSME category. So we are expecting the MSME category restructuring to happen anything between INR 4,000 crores to INR 6,000 crores apart from the corporate. So overall now, we review our estimate, originally what was there INR 40,000 crores, now we estimate that it may not be more than even INR 20,000 crores. But the realistic figure will be known during this month and December because December 31 is the last date for invocation.

Next question is from the line of Mahrukh Adajania from Elara Capital.

Sir, my first question is on deposit -- on margins. Sir, for you margins have expanded a lot in the second quarter, and that has been the case with many other PSU banks as well. So how will you position yourselves now? Would you like to enjoy excess margins? Or would you like to use it to compete aggressively for more volume? Because that way you can expand market share. And how sustainable are these margins?

No, you're talking about NIM? That means...

Yes, sir.

Right. See, if you have seen our guidance, we -- our guidance remains at around 2.75%, it will be a little more than 2.75%. Our NIM in September has been a little exceptional at 3.21%. Now here, there are 2, 3 reasons. One reason is we have not identified any NPA. As a result, some of the accounts, for example, we have given in our presentation in Slide #44, 45, INR 3,400 crores would have become NPA, wherein interest recognition of INR 85 crores was there. So that is one area. Second, we have also adopted a change in our, what you call, income recognition in case of recoveries, which are adjusted in NPA accounts. So this adjustment has given a little amount of increase in the NIM, but we will be definitely managing anything between 2.75% to 2.8% overall for the year. The guidance which we have given earlier at the same level, this will continue.

Sir, the change in...

The other measures what we have taken are controlling the high-cost deposits. INR 27,000 crores of high-cost deposit comprising INR 16,000 crores deposit and INR 11,000 crores CDs we have shed in the month of May and June last, the benefits of which we have accrued in this current quarter in terms of reduction in interest paid on deposits, which you can observe in the slide presentation what we had given. So these are all the contributory reasons.

Got it, sir. But sir, this change in recognition in recovery, that has contributed to how much for -- in margin?

It is only -- net profit is INR 271 crores and out of which even if you remove the tax, it is INR 180 crores. So net profit wise, there is no change because that INR 180 crores, we have made the provision for a prudential requirement of COVID. So net to net, there is no increase in the net profit because of that adjustment. But income wise, there is difference of around INR 500 crores.

INR 500 crores?

Yes.

Okay, sir. Sir, my other question was on restructuring. So the corporate restructuring that you're talking about, you said you've received 15 requests? So you think that will be all or there will be more requests? And are these the corporates who are under moratorium or they're outside of the moratorium?

See, corporate -- see, by way of extending moratorium, we have given to everybody except NBFCs. Only NBFCs on case to case basis, we have extended. So naturally, even corporate also has been extended moratorium, but not many accounts, very few accounts. So with respect to restructuring, we have received the requests, out of which we have finalized for 15 accounts amounting to INR 2,022 crores. We are anticipating some more requests to come to us because we are in touch with other banks as well. Majority of the accounts are in consortium. So we expect the things to come up for the request. However, one important point, kindly keep it in mind, what we understand from the corporate world is that if they undertake the restructuring, their ratings will be under stress. In spite of their performance probably, the rating upgrades may not take place or ratings may be downgraded. This is the apprehension. That is the reason why they are able to manage with the available resources at their end and they are not coming for the restructuring in this way what we had anticipated earlier.

Okay, got it, sir. Sir, but my question was that these corporates, which are coming forward to new structure, were there also corporates that enjoyed moratorium, were they under moratorium as well?

No, no, no. I think 15 cases, probably a couple of cases are -- 3 cases are there where the moratorium is given to them.

Got it. And sir, what's -- are they very much...

Total is number 3. Hello?

Yes, yes.

Three cases are there where moratorium is also availed by them.

Okay, sir, got it. And sir, what are the sectors? And are these very big accounts or small size accounts? Any color on size and sector of these accounts that are coming up for restructuring?

There is only 1 big account out of the entire INR 2,022 crores.

This is Shapoorji, is it?

No, no, no. Not Shapoorji.

Okay. Sir, about sectors, sir?

It is with retail sector.

Okay, got it. And others are small accounts? And they will be in those...

Correct.

And they will be in impacted sectors like hotels and all or everywhere? These sectors...

No, no. All are small, are in the retail sector only, majority of them.

Next participant is Jayant from Crédit Suisse.

Sir, actually I wanted to -- two questions. One is on the moratorium piece. If you could break down the INR 2.4 lakh crores into how many have given 1, 2 and 3 EMIs? And secondly, a little bit on the disbursements and growth. How do you view that in the second half? And what is the disbursement trends like in September and October month?

Okay. See in the entire INR 240,000 crores of the moratorium, the important area of our close monitoring is restricted to only INR 48,000 crores. Remaining are all on safer, what you call, domain because they have taken the moratorium, but they are paying their installments after the moratorium. That means installments start from September onwards, so we don't have much of a concern there. INR 48,000 crores, the area where we are closely monitoring, there is improvement continuously, and we are confident that we can, what you call, control those category as well. There is one more piece, I think you must be aware, FITL is given in case of CC accounts. Our FITL is INR 3,778 crores, which we need to recover before 31st of March 2021 as per the RBI guideline. So that is also one area where we are continuously, what you call, monitoring for getting the recovery though that is -- no amount is due now, but we have seen many of the people coming back and paying money because they did not want internal -- interest to happen on that. Whatever FITL is created, major -- some of the accounts have already closed on the FITL, whereby the risk on that account to become NPA is completely removed if amount is not paid by 31st of March 2021. So from our side, these are the 2 components where close monitoring is happening. Now coming back to credit offtake, there is a good growth, which we are projecting in retail and MSME at this point of time. Already, MSME has been positive year-on-year, more than 1.1%. Otherwise, traditionally, we have seen MSME, there has been a negative growth. Retail also has grown at 3.75%, where, what you call, housing has grown by 9.77%. The growth has been good so far, and we are expecting much more to come because of the festive season. With respect to corporate, what we have seen is the demand is coming for HAM projects road infrastructure. Any new bigger investments so far, we have not touched. There are only a few cases which are coming. We anticipate demand to come in terms of cement industry, steel industry and then pharmaceutical industry and then health care industry. Though we are getting sporadically few accounts, we are yet to see. Now coming to line of credit where we have given involving various government agencies, it is around INR 50,000 crores to INR 60,000 crores, which we are confident that the amounts will be disbursed in the next few days or next few months. That is the current status as far as the credit is concerned.

Yes. Sir, but on the asset quality, one little add. So you had mentioned that INR 2.4 lakh crore is the amount where you have received less than 3 EMIs, right? I mean -- or up to 3 EMIs have not paid?

No, no, no. See, what we have done is earlier, 2 EMIs if somebody has paid, we consider them as the people who have not availed moratorium. However, finally, when we have extended moratorium, those who have not paid anything, but even though they paid up to, what you call, 4 or 5 installments, still, we have extended the moratorium. That is the reason why the book appears to be INR 240,000 crores. Out of that, more than 3 installments pending, earlier, it was INR 60,000 crores, now it has come down to INR 48,000 crores. So this INR 48,000 crores is the component where from December onwards, if nothing is paid, it may become NPA because 3 months' installments for September, October and November will be satisfied if somebody has paid 3, and he has to pay further installments. So like that we have carved out the figure where we need to move ahead for monitoring. Could I be clear?

Yes, sir. Just to summarize what you said. So out of this INR 48,000 crores, you roughly expect INR 20,000 crores to go into restructuring and another INR 5,500 crores to be slipped and then the rest to be recovered?

Absolutely right. Yes, even INR 20,000 crores -- it may not be INR 20,000 crores, but I am anticipating INR 20,000 crores. But INR 5,500 crores is the expected, what you call, slip down. This INR 48,000 crores includes that INR 3,400 crores what we have indicated...

Yes. Sir, but then what would be our credit cost guidance for next year? I mean, would these accounts then possess -- I mean, give us a credit cost with lower interests, sir?

No. Credit cost will remain at 2.5% because roughly the reason is now the, what you call, aging provision is getting eased out. Aging provision is not going to be there. So it will be only fresh NPA provisioning. Even currently also when we have shown credit cost at 2.27%, the INR 3,400 crores related to provisioning of around INR 500 crores and odd amount, if you consider that as a provision in the, what you call, NPA, the credit cost would have been around 2.4%, 2.5%. So 2.5% average credit costs will continue even up to March 2021.

Next question is from the line of above [ Vaibhav Divekar ] from Edelweiss Financial Service.

[ Vaibhav Vora ]. Sir, why other income is less by INR 1,200 crores in this quarter?

No, in other income, if you look at even treasury has gone down and even the third, what you call, fee-based income also has gone down because of the pandemic. We are expecting the improvement to come. Further, the processing charges and everything, we have a limit to the customers because of the pandemic. These are the main reasons. Otherwise, regularly, we levy processing fee and other commissions, which we have not done during the moratorium. Otherwise, what would happen, these charges would have, what we call, created a problem if it is not recovered to make the accounts as NPA. So we'll be levying from, now, this Q3 onwards.

Vaibhav, do you have any follow-up question?

No. Thank you.

Next question is from the line of [ Rohit Jain ] from [ Tara Capital Partners ].

I am actually a bit confused by the moratorium discussion that just happened. Out of the INR 2.4 lakh crores in moratorium, you said INR 48,000 crores has not paid a single installment or have they paid 3 installments till now?

No. INR 48,000 crores is up to 3 installments.

And so the remaining INR 2 lakh crores, what have they paid? I mean like, even if they have not paid a single installment, we have classified that as moratorium, is it?

No, no, no. Listen to me. Those who have not paid 6 installments -- so I'll give more clarity. Those who have not paid 6 installments, they have all been given moratorium. So INR 240,000 crores roughly includes those who have paid installments up to 5. Now in that piece, INR 60,000 crores is the one where not a single installment has been paid as on 30th of September. Now, as of -- now, at this point of time, the amount where installments are due or paid only up to 3 are INR 48,000 crores.

Sir, can you tell me what is the amount -- or what is the total value of people who have not paid even a single installment till now?

Out of INR 48,000 crores -- it is a substrate of INR 48,000 crores. It will be around INR 30,000 crores -- INR 28,000 crores, out of INR 48,000 crores, now who have not paid anything.

Sir, you said that you expect only INR 20,000 crores to come up for restructuring and the rest to be recovered. So my question is if about 30,000 people have not paid a single installment in the last 7 or 8 months, what gives you the confidence that these are not, let's say, the higher stress accounts with almost a certainty of them turning into NPAs, because it means on the 7 months now...

See when I say the one -- the only point is out of that amount, when I say, what you call, probably I need to correct myself and I'm indicating to you, the amount as on 30th of September nothing is paid but it has to become NPA is only INR 3,400 crores, okay? And now when they have not paid any installment in the account, as of August 31, the demand is still 0. The demand is only from -- hello?

No, no, I understand. No, no, I understand, sir. I understand that rule-wise, there's no need to classify them as NPA. But my question is that if a consumer has not been able to pay a single installment in the last 7 months, then what gives you the confidence that they will eventually honor that commitment?

There are 2 dimensions; one is that people have taken moratorium; second dimension is based on their, what you call, business coming back to normalcy, they're paying the money. So we are getting recovery already from September onwards, and we are following up each account wise. So when we are seeing the recovery, we find that the amounts will come in these cases as well because the window is available up to almost December, we got 3 months. Even if somebody has not paid anything from 1st of September, I calculate, September, October and November end, by December, the account has to become NPA. But we already started getting the recovery. The quantum was very high earlier, which has come down drastically. So this is coming down with the follow-up. That is the, what you call, kind of an estimate what we are having.

Okay. And you said that for FY '21 till March 2021, you expect credit cost of 2.5%. What would be the credit cost expectation for FY '22 based on the current trend?

It would be very difficult to estimate at this point of time because the credit costs when I am estimating 2.5% for FY '21, the provision required to be made for restructuring also I am including as if it is an NPA provisioning. That is the reason why I continue to, what you call, estimate 2.5% for credit cost during year '20 and '21. Regarding '21 and '22, only we'll be able to assess probably after Q3 because we need to look at what is the piece we are getting for restructuring and how the -- this moratorium accounts are getting the recoveries. So these 2 factors will be defining that.

Fine. And last question, what is -- what would be your exposure to, let's say, the highest stress sectors, like tourism, school bus operators and restaurants and all of that?

INR 939 crores, we have indicated to you in the presentation, it is given. What we have mentioned is additionally. Last time, it was not there, this time, additionally, we have shown that figure, it is INR 950 crores.

Next question is from the line of Jai Mundhra.

Sir, based on this, sir, you have a significant market share now. I mean, after the merger, the bank is a reasonably large size bank. What would be your expectation for the system-level slippages for this year? I mean if you were to make a broad range also, what would that number be, sir, roughly?

See, RBI has estimated anything between 2% to 4% when they had come out with the financial stability report in the month of June, July depending upon the pandemic, if you remember properly. Now our gross NPA has gone down. It has come down to 13.43% at this point of time. We are looking at that we should be controlling below 14% at the gross level and below 4% at the net level.

Right. Okay. No, sir, actually, I wanted to check on the system level, sir. I mean, so RBI said 4%, but that is a net number because they are saying gross to gross.

1% to 1.25%, it could be in the system because the major difference of estimate comes from the perspective of restructuring. We thought many people will come for restructuring, not many of them are coming, and they are paying the installment. And some of them have taken moratorium, it is sufficient for them to take care of the requirements. So as a result, the system NPA increase, even though RBI estimated anything between 2% to 4%, it could be around 1% to 1.25%. That is at the gross level.

Right, sir. Okay. And checking on these 15 accounts where we have got restructuring request, what would be their overall exposure to banking industry? I mean because some of the banks that they have resulted -- reported results, they have given the number, but I mean you were the last one. So -- I mean, you were the latest. So that 15 accounts roughly would amount to how much at systemic debt?

See, out of 15 accounts, except 1 account, remaining all accounts are smaller accounts. I don't expect anything to be bigger amount. Only that 1 account might have around INR 25,000 crores to INR 30,000 crores.

Right. Apart from that, should we -- all should be in 3-digit kind of a number?

Yes, correct. Correct, correct. 3-digit only, not more than that.

Right. So is there any bottleneck from...

Sole banking otherwise.

No, all banking systems.

I mean, sole banking and banking systems will approve -- sole bank accounts are 11.

11 are sole banking accounts out of 15. 4 are only -- out of 15 accounts, what we have approved for the restructuring, 11 are sole banking accounts where the amounts are very small, not very high. There are only 4 accounts involving consortium, out of that 1 account is a bigger account.

Right. And these 3 accounts, sir, if you can tell the sector, at least the -- these 3 consortium accounts?

One is SME and 2 are retail.

Trading...

Retail trading 2 accounts and 1 is manufacturing.

Okay. So far there is -- actually, there is not much request anyway, right? So do you suspect any bottlenecks in terms of going through Kamath Committee report or they are just -- is there any pipeline as such that is reported in the...

See, there are 2 ways of looking at. One, I'll tell you the other way around. Kamath Committee recommendations have been very good because the ratios also they have specified as per the industry is concerned. And customers, that is -- industries or corporates are also -- if they undertake the restructuring, their rating may be impacted. Their -- and even if they do well in the future because of the restructuring being there for at least a minimum period of 2 years, their rating will not be upgraded. So these are the concerns what we are looking at. The other way around is, initially when the recommendation came, the kind of discussion what was happening is that whether the 2 years moratorium is sufficient initially in the restructuring. For a report to be viable, you need to get RP4 rating. For RP4 rating to come, sustainable debt has to be, what you call, identified. Now with 2 years moratorium, will it be sufficient? These are the main points of discussion. Probably we may have to wait for some more time to understand the behavior from the corporates. As on today, even I have checked with other banks as well, we are not seeing much of a recourse coming to the banks for the request of restructuring.

Right. Right. Okay, sir. And coming back to, sir, about disclosures on moratorium because it is slightly different from other banks. So what other banks are saying that we do not keep track of moratorium period that is over. What we are concerned with is if they are paying in September or October or no, right? So if I were to look at your bank, what would be the amount, which either they were in erstwhile moratorium or no, but which have failed to make September dues or October dues?

See, that is what I have indicated to you. We have transparently given you the sheet. I don't know by giving these details whether we have created more confusion among the analysts. It was with an intention of showing you the transparency, the disclosure. All the accounts where we have identified and given the moratorium, we have marked in our system, and we have culled out the data. And that data, we have presented before you involving all the categories of agriculture, retail, MSME and corporate and others. Now all these accounts, out of the entire INR 239,000 crores, the only amount that would have become NPA as of 30th of September is INR 3,400 crores, which has not become NPA but for this, what you call, Supreme Court judgment. So that INR 3,400 crores we have opted provision equivalent to 15%. So that INR 3,400 crore, that is over. Now remaining amount, the due of that INR 3,400 crores is those accounts which were SMA2 as on 29th of February and money has not been received. If you remember, the SMA2 as on February 29 for PNB was around INR 6,000 crores -- INR 6,900 crores. Out of that, this is the only component where no money is received, which otherwise would have become NPA. Now remaining all accounts, the demand is not there up to 31st of August. So whatever demand is there, demand is created from September onwards. Now September onwards, the demand is created and they have to pay the money. Now, in that, we have bifurcated in such a way that those who have paid installments only up to 3 installments, that amount as on September was around roughly INR 60,000 crores. Above INR 60,000 crores, they were carrying installments paid for more than 3. So there's no threat for them to become NPA in the next 4 to 5 months' time. So this INR 60,000 crores has become INR 48,000 crores as on today and further recoveries are in progress. These accounts also will not become NPA immediately even if Supreme Court judgment is lifted tomorrow or they opted tomorrow. The window is available for another 3 months, September, October and November and December, because if one installment is received for the December, there -- it will not become NPA. So we are monitoring very closely to see that the component will not become NPA. Now out of this composition only, some may be restructured, which I am expecting up to roughly INR 20,000 crores as on today. Earlier estimate was INR 40,000 crores, now it is INR 20,000 crores. And account slipping, roughly around INR 5,000 crores. I am expecting slippage to happen up to March '21. So whatever figures will come INR 20,000 or INR 5,000 crores will come from this INR 48,000 crores as on today, but that is also expected to be reduced with the recoveries which are forthcoming. Could I be clear on that now?

Yes, sir, yes, yes, sir. Sir, just to make it very clear, the -- I mean, out of this INR 240,000 crores, INR 200,000 crore have -- I mean, INR 192,000 crores, let's say, which is INR 240,000 crores minus INR 48,000 crores...

Correct.

They have -- you already have received 3 EMIs. So even if...

More than 3 EMIs.

Let us say, they were not to pay, they -- you, anyway, have the 3 months standard track record, right? Because they've already said where the divide was not there?

Correct.

Right. And hopefully, in the 3 months, they will become standard and they will resume, even if, let us say, they have not...

Yes, they'll resume the payments. Already they have resumed. Now we can call them standard only because there's no demand up to 31st of August.

Right. Right. Right. Okay. Understood, sir. And last thing, sir, if you have this ECLGS disbursement, how much have we made and what -- in your expectation, what is the use? I mean are the people repaying the earlier debt or they're funding loss or they are using that to sort of restart the business? Any qualitative thing.

See, 90% to 95% is only for restarting the business. Restarting business includes handling the fixed cost expenses. That is what we have sanctioned, is INR 11,000 crores, to be exact INR 10,957 crores in emergency line of credit extended to MSMEs. So 90% to 95%, it is only for restarting of the business by maintaining payments to the fixed costs. So this piece, since it is given, those category of advances, we are not expecting them to have any trouble in terms of, what you call, restructuring requirements.

Next question is from the line of Mahrukh Adajania from Elara Capital.

I had a few follow-up questions. First is that -- so my first question is that you mentioned that at the sector level, the earlier estimate was 2% to 4% of GNPAs, now it will be 1% -- 1.25% incremental. So it's lower because collections have improved better-than-expected or it's lower because there will be some amount of restructuring also or, in general, we were cautious while making the first assessment?

It is the combination of both. In June, when RBI has -- in the month of July, when RBI has come out with the financial stability report, at that time, the visibility related to the economy how fast it will come back was not available; whereas today, if you see rural economy has come back very fast, semiurban economy is looking very nice, now only urban economy has to come back, which is dependent on various linkages in the supply chain, logistics and other areas. So -- and festive season is also creating good amount of an impact for the economy to come back. So these are the reasons why the estimate of gross NPA to go higher between 2% to 4% can be reworked. Though there is no official estimate from RBI neither from any other source, but it is only my understanding in -- based on the discussions what we undertake among the various bank MDs that the gross could be higher anything between 1% to 1.25%. So one reason is the coming back of economy. Second, the efficiency in terms of the collection. When I say efficiency, it is more related to the intent to pay rather than the bank's efficiency. The reason is people have seen 2 moratoriums, 3 months and 3 months, and they have realized whatever money they held back anticipating unforeseen circumstances, now they are clear about the unlocking period and economy coming back, so people started paying. The collection we have seen in a better manner from, what you call, September onwards. Those people who have already money, in terms of personal loans and other things, they started paying during moratorium itself. However, those who held back, they started paying from September onwards. So these are the 2 reasons. One is collections more than anticipated level to be there; and second, economy coming back better than what was anticipated in the month of July.

Right, sir. But through these NPAs, we also had to improve the restructuring number, right? Because some of them, which could potentially slip when they come can be restructured?

See, if you look at the restructuring eligibility itself, other than MSME, only SMA0 was eligible. SMA0 being eligible, it is a running unit. So we don't expect the slippage out of the restructured profile if we undertake the restructuring properly. You may face technical difficulty only in those, what you call, industries where probably deep restructuring is required going beyond 2 years for the moratorium. We don't see much of an impact in those areas. If at all the issues come up -- may come, they may come in hospitality industry, they may come in tourism industry. As far as PNB is concerned, our outstanding is only INR 969 crores as on today.

Got it, sir. Sir, and just coming back on the ECLGS, so earlier when the government launched the scheme, the impression was that it would be used to pay up existing loans. So for what you said, that's not the case, is it?

No, no, it was not for the purpose of existing loan to be paid. It was for the purpose of managing their business for the fixed cost. More importantly, it was fixed expenditure they have to manage, during the moratorium, businesses that were shut down. So that was the main purpose. That is why government has given guarantee to those accounts. So as on 29th of February, all the outstandings up to INR 25 crores initially, it was given; later on, it was extended to INR 50 crores. In fact, a lot of people have taken the sanction initially and they have not taken the money. They told that we will take the money only when it is required when our units start. The disbursement have started more effectively only after September, that is after 1st of September. Once the moratorium has ended and they started seeing the economy coming back, the disbursements have started. Though we have sanctioned INR 11,000 crores, initially the disbursement was only 60%, 65%, whereas today now it is around 96%, 97%.

Sir, and one of the franchise also said that a lot of...

Hello? Hello? Hello?

Mahrukh Adajania, can you hear us?

No, there was disconnect from her.

We move to the next participant. Next question is from the line of Deepak Kumar, an individual investor.

Sir, I just want to know that if we calculate the book value from the reserves and surplus in the balance sheet, it comes to around INR 91. But in the investor presentation, it is INR 54. Why such a big difference, sir? How do you calculate it?

We need to check it out. I am also surprised, it is INR 54 only as per our calculation.

I mean, balance sheet like seeing results, in reserves and surplus if we add to the...

We reduced the DTA, deferred tax assets [Foreign Language].

[Foreign Language], DTA?

It is available in the balance sheet. Other assets -- it's part of other assets, probably you may not be doing exactly. So it is part of other assets, in the DTA, that amount we reduce and calculate.

For all the banks?

Yes, correct.

If we check other banks balance sheet also, it has to reduce the DTA...

Yes, other bank balance sheet also, it will be like that only.

So it will be in the assets?

Correct. Other assets.

Next question is from the line Abhijeet S. from Kotak Mutual Fund.

This is Abhijeet from Kotak Securities. Sir, first question is, could you explain the reasons for high recoveries during the quarter? Any big amounts on...

It is not very high recovery, it is only INR 3,200...

Right, then the -- yes, no, the jump that we've seen over the previous quarter, anything specific for this quarter as of now?

No, there is a -- see, NCLT related around INR 180 crores or something we received. See, if you look at overall -- 1 minute, the recovery, if you look at cash recovery, it has been INR 2,281 crores in September, that is Q2. Q1, it was INR 1,069 crores. INR 2,281 crores comprises of roughly around INR 217 crores where we have received recovery in NCLT cases. And all are smaller accounts. Actually, these -- even in NPA also, in smaller accounts through the follow-up the recovery came, these all very small accounts.

And what is the expectation for second half?

Second half expectation is 2 dimensions. One is, in NCLT, we are expecting a reduction of around INR 8,000 crores in NPA through the settlement of Bhushan Power and other accounts. Bhushan Power itself, we are having an outstanding of INR 6,000 crores, out of which we are expecting recovery -- cash recovery of INR 3,800 crores. So if you look at cash recovery from NCLT, our expectation is roughly INR 4,800 crores, whereas reduction will be INR 8,000 crores. Other than NCLT, we are expecting overall in the year INR 8,000 crores against which we already received a recovery of, what you call, INR 3,200 crores. So another INR 4,800 crores, we are expecting recovery during the H2. So if you look at overall, INR 4,800 crores from other than NCLT; and INR 4,800 crores from NCLT, cash recovery, together INR 9,600 crores. Reduction will be much higher than that.

Understood. Sir, second question. Sorry, if you have to repeat this, could you explain the difference in the moratorium definition between June and September?

Which one? Moratorium?

Yes, the definition of moratorium.

No, no, it is not a definition. What we have shown is, when we were indicating the figures regarding the people who have taken moratorium, we considered all those people who have paid 2 installments or more. Those people we have considered them as people who have taken the moratorium. When at the time of crystalizing, as on 31st of August, we have permitted a moratorium to everyone who have paid only up to 5 installments. Can I repeat again? 2 installments paid, people were not considered as people who have taken moratorium in -- when we had given earlier figures, that is because people -- that is the intent of the people to pay the money during the moratorium period. But when the moratorium ended as on 31st of August, we have extended the moratorium since we have given opt-in category. That means somebody who doesn't want moratorium has to tell that he doesn't want moratorium. So everybody we have extended. So while extending, this has been extended to all the borrowers who have paid up to 5 installments. If somebody had paid 6, naturally no moratorium is given. So up to 5 installments, the composition comes to INR 259,000 -- that means, what you call, INR 239,000 crores, roughly around INR 240,000 crores. So this INR 240,000 crores, within that, if you bifurcate again, those who had paid up to only 3 installments, that category is INR 48,000 crores as on today.

Yes.

Could I be clear? So that means remaining all amount, they paid more than 3 installments.

Sure. All right. And sir, on the MSMEs, you've indicated about INR 5,000 crores to INR 6,000 crores of restructuring. Just sir, trying to understand qualitatively, why have these customers not used the ECLGS scheme or any other scheme? And secondly, there was anyways a scheme that was running before COVID. So why have these customers not been able to utilize the existing schemes?

No, there are 2 reasons. The ECL also we have given for INR 11,000 crores, as I have indicated to you. If you see the SMA2 category published by us, INR 19,137 crores, out of which MSME comprises INR 6,668 crores. So that is our estimate that out of that, probably around INR 4,000 crores to INR 6,000 crores could go into restructuring. But for them also, the first benefit will be given in terms of lending under the government-guaranteed scheme. Already we covered many of them, we are reaching out to the people, some of them have not come. This SMA2 does not mean the unit is not running or they are not having money. It is only because of the moratorium the unit was, what you call, not functioning. That is the reason why the account has become -- come into SMA 2 category. Now as far as the eligibility for MSME, what you call, lending for the -- this government lending is concerned, there is a difference between the account to be eligible under moratorium -- what you call, restructuring and for emergency credit. For restructuring in MSME, even if it is SMA2, they are eligible. For other than MSM -- MSME, for restructuring only SMA0. Coming back to additional lending to be given, they are to be given only for standard and SMA0. So there is a difference in the eligibility. That is the reason why that gap is coming.

Sure. No, I was trying to understand because the SMA2 in the MSME has been -- has gone up over the last 1 year, so...

Correct. INR 6,668 crores.

It was not SMA2 few quarters back, right, sir?

Yes. That is the reason why that -- finer gap between being eligible for additional lending and eligible for restructuring, that is the gap roughly around INR 3,000 crores to INR 4,000 crores I am anticipating.

Next participant is Amit Jain from Axis Capital.

Sir, is it fair to assume that this INR 48,000 crores, which you believe is currently under stress, a large part would be, say, MSME or corporate?

No, corporate is also there. MSME and corporate, yes, you can assume because retail is less.

So retail portion would be very less, right?

Very less, very less, correct.

And sir, in terms of COVID provisioning, sir -- or sir, overall contingency provision, could you tell us what is the outstanding number?

See, one is that we have bifurcated INR 3,400 crores, which otherwise would have become NPA, but for the Supreme Court judgment, in that, we have derecognized the interest of INR 85 crores and also provided 15%, which comprises around INR 580 crores. That is one component. Then additionally, we are holding INR 595 crores for the amount of INR 7,000 crores, which was SMA2 as on 29th February. Later on, it has come down to INR 6,900 crores. Originally, it was INR 7,900 crores, it was INR 6,900. Though there is an overlap between the 2, but we hold additional provision to the extent of INR 350 crores as on today. This is not marked to any account.

Sir, and apart from that -- and I believe, sir, apart from it, you would have some standard asset and other contingency provision as well, right?

Yes, correct. That is what I'm saying. It is around INR 400 crores, which is visible there. See, on the provision what I told INR 580 crores is only standard provision, it is not NPA provision.

Okay.

So if you look at standard provision overall, INR 595 crores plus INR 580 crores, that is INR 1,175 crores is the amount which we are holding under standard category provision. Only ad hoc provision for COVID-19.

So this entire INR 1,175 crores would be for COVID, right?

Yes, it is for the COVID related.

Next question is from Ankit Bansal, an individual investor.

[Foreign Language]?

[Foreign Language]

Second question is, I'm asking the PNB [Foreign Language]?

[Foreign Language] It is different. They can be choosy in terms of the sectors. It doesn't mean we are not choosy, but it means that our commitment to the infrastructure is much higher in terms of the public sector. [Foreign Language] If you look at, there are 2 kinds of legacies. One legacy is the brand image got impacted because of biggest fraud what has happened. [Foreign Language] [Foreign Language] So '22, '23 will be a springboard for increasing the business for Punjab National Bank.

[Foreign Language]

[Foreign Language]

Hello?

Sir, the line from the management is stopped. Ladies and gentlemen, thank you for your patience. We have the line for the management connected back to the call. Sir, you may go ahead with the question.

Who was the other gentleman who was questioning?

Ankit Bansal.

Yes, Ankit, can I continue?

Yes, sir. Yes, sir.

What I was telling is [Foreign Language] critical mass available for the retailers to trade regularly [Foreign Language]. So either FPO or QIP, if you are able to bring at least 20% to the extent retail segment or other than government, then you will find more difference in terms of the trading of the share price and increase in the share price based on the performance. [Foreign Language] because the kind of trading or the kind of volume which is required, it is not happening. That is the major reason. It is not exactly reflecting the intrinsic value of the bank, not only PNB, but majority of the public sector banks except maybe State Bank of India because it is a different animal. It has already taken public shareholding to a larger extent or maybe 1 or 2 banks. This is the position. So unless we come out of this vicious cycle, the investors will not have a better, what you call, visibility related to the trading of the share of Punjab National Bank. That is my understanding.

Next question is from the line of Prabal Gandhi from Antique Stock Broking.

Sir, my question is on the capital raise. So our CET1 is low at 9.5% And given the restructuring pipeline of INR 80,000 crores and the expected slippages, are we planning to raise any capital in the near future?

[Foreign Language] We have already taken the Board approval for INR 14,000 crores. Out of INR 14,000 crores, Tier 2 is INR 4,000 crores; AT1 bonds are INR 3,000 crores; and QIP is INR 7,000 crores. As against is INR 4,000 crores of Tier 2 bonds, we have risen INR 1,000 crores in the month of July, INR 1,000 crores -- INR 1,500 crores in the month of October. Now another INR 1,500 crores in Tier 2 bonds and AT1 bonds of INR 3,000 crores, we are confident [Foreign Language] November from the market. So that will conclude INR 7,000 crores together, Tier -- AT1 and Tier 2. Out of the INR 7,000 crores equity, we have already initiated the process. We are planning to come to the market somewhere in the second or third week of December, provided everything goes well because we are finalizing the BRLMs to be selected in the next couple of days. So with this, our capital estimate will be anything between 12.5% to 13% in a worst-case scenario after considering INR 20,000 crores restructuring and INR 10,000 crores slippage. If it is going to be lesser than that, we may even touch more than 13% in the CRAR position as of the end of March 2021.

Okay. And sir, in this capital raise of INR 7,000 crores, once again, if you could define that? Is the government also going to participate in that?

No, it will not. See, QIP government will not participate.

So basically, it will be dilutive -- okay, okay.

Yes. It will reduce the component. See, ideally speaking, I don't want government to be at 85.5%. Only because the market appetite we have to see for raising the QIP, otherwise it doesn't give me any comfort if I go on taking the money from Government of India, where the stake will increase, and there won't be any retail stake available for trading in the market.

Next question is from the line of [ Rohit Jain ] from [ Tara Capital Partners ].

I had just 1 follow-up question. You said that the COVID provision that you have, contingency provision, is about INR 1,100 crores, which is, I think, around 10 to 20 bps of your loan book. I want to understand when some of the other private sector banks, who generally have had a better history, in terms of NPA, they are holding the COVID provisions of anywhere between 1% to 1.5%. So why is it that we have provision only so less as a contingency measure for COVID?

No, it is not less. It is calculated mathematically because the entire SMA2 book as on 29th of February, where some of the accounts have slipped already, suppose -- see, we have given in our presentation, there is a INR 429 crores, which has already become NPA out of that composition. Now what remains as on today is INR 6,921 crores. So against that 10% provision, we have kept aside. Now again, additionally, we have made INR 400 crores and another INR 180 crores provisioning. So overall provisioning is INR 1,175 crores. In our understanding, it is sufficient to take care of the requirements. And if any restructuring goes, even if INR 20,000 crores is restructured, what you require is only INR 2,000 crores provisioning. Every quarter, we are able to make provision of anything between INR 3,800 crores to INR 4,000 crores based on our operating income. So we are confident of handling this in Q3 and Q4 more effectively with the provisioning, what we have done.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Bhavik Shah for closing remarks.

On behalf of Batlivala & Karani Securities, we thank Punjab National Bank management for giving us the opportunity to host the call. Thank you, everyone, and have a good day.

Yes, yes, thank you very much. How many people were there in the con call. Any idea? Hello?

Sir, 131 participants.

131. So not everybody has asked the question?

Sir, mostly, people have ask the questions. There are no further questions in the queue.

Okay. No, my request is, if anything is required further also, we can be in touch with for any more clarification. We have brought about our presentation, what you call, wherein majority of the, what you call, disclosures have been brought related to the COVID and other required -- requirements, okay? Thank you very much for hosting the call.

Thank you very much. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.