Punjab National Bank (PNB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Punjab National Bank's Q4 and FY '21 Post Results Conference Call hosted by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions] Please note that this conference is being recorded. Participation in this conference call is by invitation only. Punjab National Bank reserves the right to block access to any person to whom an invitation is not sent. Unauthorized dissemination of the content or the proceedings of the call is strictly prohibited, and prior explicit permission and written approval of Punjab National Bank is imperative. Please note that this call is only for investor or analyst. I now hand the conference over to Mr. Bhavik Shah from Batlivala & Karani Securities. Thank you, and over to you, sir.

Thanks, Steven. Good afternoon, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to Punjab National Bank Q4 and 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 sir; Mr. Sanjay Kumar, Executive Director; Mr. Vijay Dube, Executive Director; Mr. S.K. Saha, Executive Director and other senior officials. I would now request MD and CEO sir to start the call with his opening remarks on Q4 and FY '21 results, post which, we can start the Q&A session. Over to you, sir.

Right. Once again, good afternoon to all of you. The year 2021 has been tough, as you are aware across the globe, and our country is no exception for that. Tough not only sociologically but tough even from the economy perspective. Besides the impact of COVID, we also had additional responsibility related to amalgamation of Oriental Bank of Commerce and United Bank of India into PNB. Now during the entire year, we have also -- because of the amalgamation, we got certain legacy in terms of the composition of balance sheet where we thought probably there is a requirement for us to rebalance the same effectively by looking at. So in the entire year, we have done all these measures, which were required. First, the technology integration we finished by November, one bank; December another bank. Second, entire organization has been restructured effective from 1st of July, which is now functional effectively. Third is human integration to the extent it was possible we have done because of the COVID, not many transfers could have taken place. However, later on, we have adjusted in such a way that there's no issue at this point of time, though COVID second wave has come, which can be taken care in the next couple of months. So on the front of amalgamation related to technology, integration, human integration and business integration was completed. Now with respect to carrying the legacy, we were carrying INR 50,000 crores over in bulk and CD deposits which we decided to reduce it. Accordingly, we reduced to INR 20,000 crores liability; around INR 30,000 crores, INR 32,000 crores has been completely removed in the liability in the bulk level. On the contrary, if you look at the increase in CASA has been more than 11%, 12% savings and increase in deposits up to INR 2 crores has been 19.5%. So it has been very, what you call, good growth in terms of the liability to the extent it is required because the lending was not taking place in the absence of high demand because of COVID. As such, we have balanced our liabilities' entire book in such a way that the cost of deposit will be reduced. And accordingly, you would have seen in the figures that cost of deposits has come down. On the credit profile side, we were carrying a high element for pool outstanding in retail as well as MSME. So the recoveries, which we have issued during the pool, we did not want to replenish because the pool during the COVID would not have been carrying -- would have been carrying the stress. So to the extent of almost INR 6,000 crores, there was a reduction in pool where we did not replenish. Then the other way is regarding the corporate credit as well. Because of high liquidity available, we have seen good amount of competition in terms of interest rates wherever the line of credit was available, and utilization of funds by even AAA-rated companies where the tough competition was there. So in the domain to the extent where we were comfortable we have done, otherwise, we did not move further to provide the price. So these are all the consolidating reasons when we come with respect to the assets and liabilities. And in terms of assets, we've -- our growth in retail has been 9.5%; MSME has been 7.5%; and agriculture was around 6, core retail. Within the retail as well after the pent-up demand started coming from in October 2020, we concentrated on personal loans, we concentrated on vehicle loans, and we concentrated on mortgage loans more than that. And there, we can see the percentage of increase there. In terms of other loans like loans against deposits or otherwise, where people were required to utilize the money, then it has come down. So overall, in the balance sheet, what we have seen is consolidation we have done, and we did not want to carry anything beyond March '21 with respect to any element of composition, which we thought it is not required to be continued. Now coming to asset quality. The amount of pro forma NPA at the end of December was INR 13,000 crores. And in the month of March, April, May, because of the impact on how we have to go about for restructuring in terms of the window available under OTR 1.0, which was given in the month of August, so we have seen that wherever the accounts restructuring may not show much of benefit, we have allowed them to become NPA. As a result, by March 2021, the NPA was around INR 23,000 crores for the entire year in fresh slippage, which contains majority in retail and MSME. This composition also contains roughly INR 2,000 crores, which would be upgraded because of restructuring. It is a corporate book where restructuring window was invoked prior to 31st December. Now it has been done, restructuring is complete, because there is a consortium advance. Whereas in March, it became NPA, but that will be upgraded. Further out of INR 23,000 crores, already as on today INR 3,000 crores upgradation has already taken place across the banking industry -- sorry, across the PNB country. So roughly around INR 5,000 crores is upgradable or upgraded as on today out of the INR 23,000 crores. Now coming to the other factors, if you look at the kind of guidance what we had given last time when we were declaring the results for March 2020, we predicted that we should get profit in each quarter, and the total should be around INR 2,000 crores. And by March 2021, we booked a profit of INR 2,022 crores. CRAR minimum we said 12.5%, whereas we are standing at 14.32%. However, this also will be added by another 30 basis points because of INR 1,800 crores what we have taken in the month of May. So CRAR will become 14.62% and CET-1 will become 11.80%. CASA share, we predicted at 45%. Now we stand at 45.5%. NIM, we have given a guidance anything between 2.5% to 2.75%, we stand at 2.88%, global NIM. In case of domestic, it is 2.99%. In terms of credit cost, we gave a guidance between 2% to 2.5%. It stands at 2.24%. That is related to what we have done by March 2021. Now without going into further details, since I've given already the important figures, I'll be open for, what you call, question-and-answer now section directly. Thank you very much.

[Operator Instructions] The first question is from the line of Sandeep Agarwal from Naredi Investments.

Sir, my question is regarding PNB Housing Finance. Sir, what is our further plan after this preferential issue? Do you want to remain as a promoter under jointly managed company or looking for more stakes over a period of medium to long term?

Okay. See, I'll take a minute to properly give you the, what you call, background before you understand our call. Number one is PNB Housing Finance was requiring the capital for the last 1.5 years and originally estimated at INR 2,000 crores earlier. That was almost 1.5 years back. PNB is holding 32.62% stake, which is above the regulatory requirement of 30%. So there was a regulatory conflict we should have reduced below 30%. The communication was given to us in the year 2017. Then for the first time, we have reduced our stake. It got it down to 32.64%. At that time, the price was INR 1,600. Now after that the price has gone down, as a result, bank could not dilute to the extent of the required of a little over 2% or 2.62%, so that it could have come below 30%. Initially, that is one background. Second point is, in the last 1.5 years when PNB Housing Finance wanted to increase the capital, the first option, they have looked at is, the rights issue, because from market, they have already selected for BRLMs, who have given opinion that market appetite may not be very high, particularly COVID was also there after March. So this was from October 2019. There endurance was there. Based on the feedback they initially thought of getting some rights issue contribution, which did not happen since PNB could not continued. Then PNB made it clear to them that you should go to the market now for getting the money. By which time the COVID impact also has come, as a result, there was an elevated requirement of capital for them. So under these circumstances, it's -- from market, they are not able to get the money, they've relied on the investors existing for getting the capital. These were the reasons for the investors coming forward and investing. Now from the PNB perspective, we are not diluting any stake. Our stake remains the same. But in percentage terms, it will go down because of the contribution of the capital from other investors. The number of shares what we hold will continue. Now with respect to what in future you're going to be there. As per the trademark agreement which we have signed recently, earlier trademark agreement was that PNB stake will not go down below 26%. Now if it was not going below 26%, the sufficient capital was not -- or cannot be taken by the, what you call, company. As a result, we have gone for change in the trademark agreement where we put a benchmark of 20%. So we will not go below 20%. Now in the new scenario, the, what you call, position expected could be anything around 20.5% or 20.4%. It will come out finally. So that would be the figure. So our commitment to the company remains as on today, we will continue to be the promoter, for which we are permitted. And valuations have also increased, which would not have been expected by any one of us. And the company should run effectively post COVID when the demand is coming up for the housing finance company. It should have a wonderful opportunity for lending. So it should be a solution in permanent rather than, again, going to the market for capital again and again in the next 2, 3 years. These are all the important objectives, which were discussed before this call was taken. And accordingly, this call was taken. So to the limited point of your question with respect to what is the PNB's viewpoint, PNB will remain there. We don't have any plan to exit. Already, we have taken a decision with respect to CHOICe Canara HSBC Insurance Company, where we have decided to exit. The formalities will take place. It is not a listed company. However, valuations will be done and according to the shareholder agreement, the process will be forward.

The next question is from the line of Mahrukh Adajania from Elara Securities.

My question is on restructuring. So you've given implemented restructuring of INR 2,600 crores. And in the last quarter, you had indicated a much higher figure, especially for corporate restructuring. So the implemented restructuring in the corporate segment is around INR 5.6 billion. Whereas last time, you had indicated a pipeline of INR 90 billion. So you did comment earlier that INR 20 billion has probably been restructured in 1Q. But of that INR 90 billion, are there any other accounts in the pipeline as well? So what is the total restructured number for the corporate segment, including pipeline?

Okay. See, the restructuring, what we indicated in Slide #33 of INR 2,372 crores, is a normal course of restructuring, not related to OTR 1.0 as, what you call, envisaged guidelines for which came in August 2021. Now out of that figure, the restructuring position is -- just 1 minute. See, if you remember, our indicated amount was around INR 9,000 crores in the corporate book and others together, INR 11,000 crores we indicated. Out of that in the corporate book, the restructuring what was done is only an amount of around INR 500 crores. Whereas now we have invoked to the value equivalent to INR 9,000 crores. So out of INR 9,000 crores, only around INR 500 crores was done before March. And after March, we've already done INR 2,000 crores. So this INR 2,000 crores has become NPA in the opening remarks I told, which would be upgraded. So remaining INR 7,000 crores also will be undertaken before 30th of June. However, in case of accounts up to around INR 2,000 crores to INR 3,000 crores, the response has not been there for undertaking the restructuring as they think that restructuring is not required, they can continue. So if I summarize everything, as against INR 11,000 crores, including corporate book of INR 9,000 crores and MSME together of 2,011 -- INR 2,000 crores, overall INR 11,000 crores, we may end up with INR 9,000 crores overall under the OTR 1.0 before 30th of June.

Okay, sir. Sir, my other question was, what is the total interest reversal on NPLs in the fourth quarter?

Total interest reversal on the...

On NPLs.

That is at the end of March?

Yes. For the fourth quarter, during the fourth quarter. Not for the full year, for the fourth quarter.

It is INR 1,277 crores.

INR 1,277 crores. Okay, sir...

Because it is a period of 9 months -- sorry, 7 months. See pro forma NPA...

Pro forma, yes, yes, yes.

You remember, pro forma NPA, what we have shown interest reversal of INR 431 crores in the provision we have shown. If you go through last time figure, that INR 431 crores is included in the INR 1,277 crores.

The next question is from the line of Akshay Ashok from Dalal & Broacha Stock Broking.

The question I had is the sort of doubt regarding this restructuring. So restructuring of accounts, they need to be standard as on date of invocation or there should be standard as on March 31, 2021?

No, as on date of invocation.

So that could become a problem, right, because now that the second wave, then there could have been accounts that have slipped in April, May and June and...

See, there are 2 things. Restructuring in the month...

If accounts are not standard, then you cannot restructure them.

No, no, no, listen to me. Restructuring window opened by RBI in the month of August has 2 dimensions: one is for corporate through the, what you call, Kamath Committee recommendations and all other factors are there; second window was related to retail and MSME. In case of MSME, eligibility was different. SMA-0 and 1 were also eligible. In case of retail, only SMA 0. So considering all these factors, restructuring was undertaken differently. In case of retail and MSME, there's no question of any invocation and undertaking because there has not been any time window, it can be implemented immediately. In case of corporate, only you will invoke because it requires RP4 rating and all the consortium members coming. That is the reason why there is a window required. So restructuring related to retail and MSME under the guidelines given in the month of August got closed as of 31st March 2021, and whatever restructuring was required, we have undertaken. Only for corporate segment, we have invoked before 31st of December for the accounts involving an amount of INR 9,000 crores, against which before 31st March, we could restructure only around INR 600 crores. And as of today, INR 2,000-further crores have been implemented. However, this INR 2,000 crores what I'm referring has slipped into NPA as on 31st March. But in terms of the RBI guidelines, they can be upgraded immediately after implementation, and that has already been upgraded. So the remaining roughly around INR 7,000 crores in corporate book where invocation is done and restructuring has to be implemented will be completed before 31st -- 30th of June 2021. That is related to restructuring window opened in August. Now recent guidelines of restructuring is applicable only to MSME, non-MSME small business and, what you call, other sectors. That is individual cases. So this is...

That's what sir, so these accounts, if they would have slipped in April and May and June, so these cannot go for restructuring?

Not April, only by 31st March, if they slipped into NPA, they are not eligible.

Okay. But there should be standard as on date of invocation, right, you told now. So if they would have slipped now, you cannot restructure them.

Again, listen to me, I'm clarifying to you. Clause of invocation is applicable only for, what you call, corporate advances. That window was already closed now by 31st March regarding invocation -- 31st December, I'm sorry. So for all other accounts, now the second window is only MSME. There's no clause of invocation there. RBI's requirement is as on 31st March 2021, the accounts should be standard.

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

Very outset -- I mean, take my compliments for overall good performance of the bank, sir. I mean you have got a very good capital adequacy of 14.32%, good CASA. A very good amount of the NIM in this difficult time. Cost-to-income ratio is just 46.9%. Net profit also INR 586 crores. So some of these parameters, I mean, you come really very well in spite of all this difficult time and the problems. And for that, please accept my compliments. Sir, I have a few data points and some observations, some small points which I -- when I went through the results. Number one, in the case of this JSC Tengri Bank, which has gone for, I think, action there for the local regulators. The provision in this quarter was INR 351 crores. And up to 30th September, it was INR 341 crores. So any more provision is left to be done in this bank because -- or any chances of any recovery out of that?

See, first of all, there is no provision further required. I will explain you both the provisions were different. First provision, in September what we have undertaken, was the capital what we have input in the company. When the company has done for liquidation, the capital is nullified first. So that provision 100% we have done. Then there was a liquidity support to what we had given. We means our branches in Dubai, Dubai branch has given. So that amount is a liquidity support which is like need to be settled when the liquidation proceeds are in progress. So our claim has already been recognized by the liquidator. No money is to be received. However, as a matter of abundant precaution and prudent measure, we have provided 100% now at the end of March. So right now, there is no provision required. However, there will be an -- amount will be recovered through the liquidation proceedings once the process is completed at their end.

Point well taken, sir. Sir, in case of this fraud provision of INR 1,013 crore will be -- now the balance is still pending. So do you plan to make the provision in this quarter? Or as per the regulation, what is the regulation space, I mean...

Regulation is 1/4. 25% you can do in each quarter.

So now how much is left for how many quarters?

See, INR 1,041 crores or INR 1,005 crores is the left, which we have shown in our notes and accounts.

Yes, not so much...

See, but it's not a big amount. It can be adjusted easily. In the next 3 quarters, it will be nullified. Even we can do it in 2 quarters as well, depending upon the flexibility what we have.

Good, sir. Sir, in case of this new -- the bad bank coming, NARCL, have you worked out, out of this INR 84,000 crores, INR 85,000 crores of -- which has been identified, how much is your spend? Whether it is 100% written-off accounts?

It is INR 8,000 crores roughly from our side. It is 100% provided. We don't call it as written-off.

Sorry, not written-off, but provided, yes.

Yes, 100% provided accounts. INR 8,000 crores is the rough estimate. INR 7,900 crores something figure in the tranche 1.

Okay, sir. Sir, in the provision, there is a provision of INR 440 crores in the other provision. What this other provision for INR 440 crores?

Tengri Bank and OTR, one-time restructuring provisions.

Okay. So Tengri Bank has been included here in this. And sir, when I look at the advances, I mean in the aviation advances of INR 6,353 crores and tourism advances of INR 1,690 crore, there have been an increase in this year of -- these advances in these 2 fields, which are badly affected by COVID. So what kind of advances these are? And why were the lead of -- I mean, extending further to tourism and hotel and the aviation?

Aviation is strictly government guaranteed, INR 1,000 crores.

That is okay. They fully, the entire amount...

Yes, yes, 100% guaranteed by the government, central government that too.

Yes, sir. And tourism...

Mr. Ajmera, so sorry to interrupt, but for any follow-up, may we request you to rejoin the queue, please. The next question is from the line of Sunny Sehgal.

Sir, I have a couple of questions. The first question is on the slippages side. So roughly, you had INR 24,000 crores of slippages in 4Q and something around INR 29,000 crores of slippages in FY '21. If you can, sir, give me a broad breakup segment-wise, like how much it was in retail, corporate, agri and MSME? And were there any lumpy accounts in it?

See, total slippage, our fresh addition is INR 25,000 crores in the entire year, correct? INR 20,000 crores in the quarter. Now here, majority is in agri, retail and MSME. Agriculture is INR 5,316 crores, retail is INR 3,441 crores, MSME INR 9,341 crores. And in other categories, it's INR 5,087 crores. And it's not a chunky one. Large corporate is not very huge.

Okay, sir. So there are no lumpy accounts, if I understand correctly?

No.

Right. And the second question is, sir, I mean, on the guidance on the recovery side for FY '22, I mean how much overall recovery you are expecting in this current fiscal? And how much -- I mean are any major infilled accounts that you are counting for recovery as well?

See, in the NCLT cases, not many bigger accounts are left. Only DHFL is there. But DHFL also, the expected recovery is not very huge. INR 2,827 crores is our credit outstanding against them, 100% provided. So we are expecting as for the resolution plan around INR 440 crores recovery, which would be a full write-back. Originally, we were expecting to happen before -- that is before June, but probably because of the litigation, it could go and come in the month of -- it may not happen in Q1. It may happen in Q2. So in Q1 and Q2 together, we are expecting around INR 1,100 crores of recovery, cash recovery, where around INR 6,500 crores of outstanding will be settled -- INR 6,400 crores of loan book will be settled, and the cash extraction could be our INR 1,100 crores in Q1 and Q2 together. That is in NCLT. No, we are not estimated for Q3 and Q4. Probably after June, we will have a better visibility because once the NCLT cases also move further. Then with respect to other recoveries, in the current quarter, already, we have received recovery of -- recovery and upgradation of INR 2,300 crores as of now. And we expect another, what you call, INR 3,000 crores to INR 3,500 crores. So roughly around INR 5,500 crores to INR 6,000 crores we are expecting. The follow-up is in progress. If you look at for the entire year, we will have a better estimate while declaring the results for June, there is COVID impact still we are assessing. Now our approach is as in this quarter, what has to be done immediately, we are working on that. Once the COVID recedes, we will have a better estimate in terms of understanding for recovery. But majority of recoveries will come in the accounts up to INR 1 crore because slippage was there in that. And I expect retail to settle down by 30th September and MSME to settle down in Q3 and Q4 because MSME stress will continue for some more time. Exact figures and the identification, we will do it once Q1 results are being submitted during next month.

The next question is from the line of Jayant Kharote from Crédit Suisse.

Can you hear me, sir?

Hello?

Hello, can you hear me, sir?

Yes, yes, I can hear you. Please go ahead.

Yes. Actually, 2 questions. One is if you can give us the SMA-1 number, which we had as of December in the QIP document? And second question is basically on the aging provisions. How much do we expect aging provisions to come through in FY '22?

See, aging provision, we will have a little amount in the first quarter, but in the Q2, Q3, Q4, it will be very less. If I have to give a figure correctly, I'll just compile and tell you. Just check it out before we conclude. Yes, one minute. It could be on an average around INR 1,600 crores to INR 1,700 crores per quarter. So roughly around INR 7,000 crores could be the overall provision required in the year.

Okay, sir. Sir, and the SMA-1 number?

SMA-1 number is around INR 50,000 crores.

Okay. Sir, but any indications on the stress right now and wave 2, I know it's a little bit early, but what are your estimates, given we've had -- I mean retail and MSME, do you think much of the stress would have gone through? Or you see another build -- round of build-up now?

MSME stress, though, it is still there, but majority of the accounts we have identified. But still, there is an element of restructuring required to be done in the new window opened, which I'm expecting around INR 5,000 crores to INR 6,000 crores. If you look at our MSME restructuring right from 1/1/2019 till 31/3/'21 where that window was open, our entire restructuring book is only around INR 4,900 crores or INR 5,000 crores, including INR 1,277 crores which we have done in OTR 1.0, which came in August. So MSME book, not very high book we have restructured, it is roughly around INR 5,200 crores out of INR 127,000 crores of outstanding in the MSME.

And you're expecting another INR 5,000 crores on top of that?

Another INR 5,000 crores maximum, INR 5,000 crores to INR 5,500 crores. We're identifying the accounts we are following up, but we'll get to have recovery rather than restructuring, unless it is warranted because GECL has also been extended now, so we can look at GECL also if there are eligible accounts other than what we have done. We have already funded INR 12,700 crores under GECL 1.0 and 2.0, when it is extended up to INR 50 crores, further INR 500 crores funding we have done. If it is extended up to INR 500 crores, we could not get many accounts. Now they have removed the cap and added this test sector. So there, we expect around INR 500 crores to, what you call, INR 600 crores disbursement. So considering the fact that the MSME units functioning, we would like to support them by way of additional funding if they require and looking at working capital rather than bringing other restructuring unless it is warranted. So we are assessing on that. So that is why our estimate could be anything around INR 5,000 crores to INR 6,000 crores in the restructuring under MSME. Retail, I'm very confident it will settle down, though it appears to be a little high in terms of slippage. For example, our slippage was almost around INR 6,000 crores or odd in terms of retail, but we expect it to -- here, retail slippage -- 1 minute -- about INR 3,345 crores. So I expect retail to settle down by September because we are able to reach out to the customer. There are incomes in public sector. Majority of the retail is given to salaried class where mortgage is available. Only in the housing loan, we find there has been a delay, but then we'll get the money. So if you ask me straight with respect to the stress, MSME stress is there, but accretion will not be as much as what has happened. Up to March 2021, we'll be able to handle. And what has accrued, also, we are confident of, what you call, upgrading some category. So overall, in the year '21/'22, we will have a control on MSME in Q3 and Q4. And in retail by Q2 itself, there won't be an issue. Coming to increase in NPA, there won't be any further increase in NPA. Even if it is coming, it will be offsetting as the recoveries. That mean slippages will be offset against the recoveries. If you observe the outstanding in gross NPA and net NPA, it has been flat compared to March '20 and March '21. The percentage is elevated because of the loan book not being high, which contracted by 3%. Otherwise, to the extent of the slippages, we already recovered or we have upgraded.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

Sir, going back to the question on MSME restructuring. If you could just highlight why is it that the borrowers are not choosing to restructure or use the ECLGS money to a greater extent?

See, ECLGS money, I think, reasonably, we have given. All the outstanding as on 29th February, 20% of the amount outstanding they were eligible, and we had given to them. That is why INR 12,700 crores lending we have done exclusively up to INR 25 crores. There are some people who did not want. There are some people who are eligible only for smaller amounts, so they did not go ahead. But there was a good chunk of people whose outstanding was not there, who are having limits, but credit balance they maintain. They were not eligible. But there, we are helping them differently by way of any increase in limited require because they are a better position account is standard. So GECL funding has happened reasonably. So I don't think somebody has not used. Only question is, when we were doing restructuring, eligibility is units should run, Units should have the capability with the availability. So those factors were seen. And if some of the factors appearing to us that it may not be viable, then we have allowed those accounts to become NPA. And we can deal them separately. If the unit is still running, order book is available, we can still fund even if it is NPA. Instead of restructuring only for a brief period, and then again, it is coming into problem like what we have seen now COVID second wave has impacted those which are restructured also. So there, we have to, again, handle them more properly. So that was the reason why restructuring book compared to other banks in our bank has been smaller one vis-à-vis the loans outstanding. In the restructured book 2.0 -- restructure guidelines 2.0, which are standard accounts as of 31st March 2021, we are identifying. As I've indicated, maybe around INR 5,000 crores to INR 6,000 crores would be undertaking restructuring because they have already withstood the COVID one wave and continue to be standard. So there the visibility of restructuring and in terms of their capability to come out of this problem will be much higher.

Got it, sir. Got it. Sir, second one is a clarification on Slide #14, where you have the rating-wise mix of loan book. That is about INR 9,000 crores of loans, which is rated D, but still standard. So just trying to understand...

Which one, which one, which one, 14 number slide?

Yes.

Yes, D is -- this is, what you call, some of the government accounts and a couple of accounts restructured book standard, where rating will continue to be D.

Okay. Okay. Understood. And sir, second one was a clarification on Slide 37 on the exposure to top 10 groups, where we see a 500 basis points jump quarter-on-quarter.

Top 10 groups? Actually, there was a, what you call, mistake. Actually figure is 12.93%. We will correct and put it immediately. It is not 18.73%. It is 12.93%. Now we have corrected and put up in the website.

Okay. Understood. Just final one, sir, on the NARCL sale, that will happen, do you expect to get 15% cash upfront on the fully provided NPLs?

Actually, what happens, our identified book is around INR 8,000 crores, which is 100% provided. Now the extraction amount we have to see, it is not on INR 8,000 crores, we will get 15%. What is the extraction? On an average, if you look at, the extraction is between 25% to 30% going by what IBC and everything happened, even though real auction will take place by the NARCL through AMC. So initially, based on each asset, a figure will be arrived at, a reasonable figure. That could be anything around 25%, 30%. Suppose, we take 25% as our theoretical understanding, for INR 8,000 crores, 25% will be INR 2,000 crores. Out of INR 2,000 crore, 15% will be the cash. That means INR 300 crores will be the cash, which can directly go to P&L to us. And 85% will be given by SR which is expected to be guaranteed by Government of India.

Got it. Got it. And sir, last 1 is what is the DT outstanding as of March 31?

One minute. INR 27,000 crores. If you may have reduced INR 1,400 crores, you must have seen in the balance sheet.

The next question is from the line of Manish Shukla from Citigroup.

Yes. The pro forma stress as of December was about INR 13,000 crores, and for the March quarter, you have reported INR 23,000 crores. That means addition of INR 10,000 crore for the March quarter over and above what was the situation as of December. Is that correct?

Correct. Correct. You are correct.

So could you give a color on this incremental INR 10,000 crore, where it has come from?

It has come from these sectors only. That is retail, MSME and agriculture.

And within retail, how much would it be secured or unsecured?

Completely secured. We don't have retail unsecured. Even if it is a personal loan given to only employees, salaried class.

Sir, I'm just curious because INR 10,000 crores across retail SME does imply that a very large number of accounts have slipped into NPA after December? I'm just trying to understand what exactly is going out here.

No, no, I do agree with you. It is only because of the collections not coming. There's no element of unsecured position problem here. That's why I was indicating retail will settle down by next quarter itself. By September, the slippages will be reduced and the upgradations will be much higher. We have to deal with only MSME.

So given the lockdowns which have happened in April and May, is it fair to assume that the number in the current quarter can be meaningfully higher than this?

It will not be higher because all the collection efficiency in April was 84%, and in May, it is 91% currently. And June, also, we are pursuing very well. Though the stress is there like we have already given the figure SMA-2, which was around INR 32,000 crores. But when we have indicated -- INR 33,000 crores, when we've indicated, but it has come down substantially as on today, and we are working on that. So I don't expect the slippage to be more than what has happened in March, not even more, it will be much lower than that.

Sorry, sir, you said May was 91%.

May was 91%, correct, collection.

Compared to March, what would it be March?

March, was also around the 84%.

So May is higher than even March?

Correct. Correct. October, November, December were better. Then January was moderate, January, February. March, it has come down a little. Again, April and May, it has increased.

Okay. On the asset sale to NARCL, how are these INR 8,000 crore identified? I mean, if you could just explain what are the nature of those assets.

See, all the assets, which are -- for which there is a value and 100% provided and not declared as a fraud.

Okay. Because you're saying that the recovery is likely to be about 25%, 30%. So I'm just curious if this is the best -- I mean, in that sense, is it the best out of the stress book that you have? And will the recovery...

No, no, I've only given you the arithmetical example. In one case, it could be 40-50. In one case, it could be 10-50. So what we have identified is predominantly not being fraud account. Second is 100% provided. And where all other banks are there. See, first what we have done is above INR 500 crores exposure in each bank, there is a multiple banks enrollment in the public sector space, not being declared as a fraud, 100% provided. So these conditionalities we have applied.

Okay. Right. Really, the last question, what's your expectation on net interest margin?

NIM, we -- our domestic stood at 2.99%. Global stood at 2.88%. And it will not be lower than 2.75% during the current year.

The next question is a follow-up from the line of Mahrukh Adajania from Elara Capital.

Sir, just a few clarification. So the NARCL, in the first stage itself, say, by June you will transfer INR 8,000 crores, right, on which the recovery will be 35% as in that the net asset value or the valuation will be 25% to 30%, and of which you will get 15% interest. That's correct, right?

No, no, listen to me. NARCL, while transferring, the net book value concept will not come because net book value as per the RBI guideline is the outstanding minus provision is the net book value. So here in every case, it will be 0 only. So it will not be criteria. Criteria is, what kind of recovery we can get when we sell through auction. NARCL advantage will be aggregation of debt from all the banks at one location, and the person who will be bidding through the tender process will have visibility in getting control of the asset immediately, protection of value of the assets. These are the advantages. So I had only given an example that in case of each asset, based on the position, the amount assessed. Though ultimately, it will go for, what you call, Swiss challenge, and then only, you will get the money. So I gave an example that if 25% is the amount. Out of that, 15% will be cash, 85% will be SR.

Sure, sir. Sir, and you had said that there's INR 1,100 crore of recovery in first and second quarter, and that's the first 2 accounts. That's correct.

Not 2 accounts. There are, what you call -- 1 minute, I'll tell you number of accounts. There are 17 accounts where outstanding will be reduced to the extent of INR 6,500 crores, and cash recovery expected would be INR 1,100 crores.

And they are all NCLT, sir?

They are from NCLT only. I'm giving you NCLT details only.

Got it. And sir, my other question was that what is your recovery from Bhushan Power?

INR 3,000 crores. INR 3,017 crores, to be exact.

Okay, INR 3,017 crore, and it's taken through recovery in written-off assets, right?

Recovery in written-off, correct. No, it is -- 1 minute. It is not fully written-off. It is actually recovery only. It is not written-off because it was there in the books of accounts.

So -- but it was 100% provided, right?

100% provided, but not written-off.

Okay. So then through the provisioning line, is it? Or through the...

Yes. Yes.

The provisions were lower by INR 3,000 crores, correct?

But we have diverted provision to other areas, correct? It is a provision right back.

The next question is from the line of Sneha from Subhkam Ventures.

Sir, 2 to 3 questions from my end. First, I wanted to know how are we seeing the overall economic point of view and how are we seeing overall credit due to...

Ms. Sneha, if you can speak closer to the handset please. Your voice is not clear.

Yes, I'm not able to understand properly.

Yes. Sir, 2 to 3 questions. First question is, just wanted to know what is the outlook on the credit cost for the next fiscal year? Second is, how are we seeing overall the credit cost considering the stress is coming down, both in retail, MSME and the corporates. So what should be the guidance on the credit cost? If possible, can you guide us how would be the slippages trend going ahead for this next fiscal...

See, before coming to the economy related, I'll first come to credit cost. Credit cost, our year ended March, it stood at 2.24%, where our guidance was anything between 2.25% to 2.5%. Similarly, last time when I spoke after the December results, I was indicating to you that the credit cost in '21, '22 could be anything between 1.25% to 1.5%. Now at that time, the COVID second wave was not there. Even now, what we would like to stick is probably the credit costs could hover around 1.5% in the, what you call, year -- financial year '21, '22.

Okay. And outlook on the credit growth?

Credit growth, I'm expecting at a conservative level, 8% because Q1 has already gone. And even though Q1 has already gone, the RBI estimated GDP growth of 9.5% very recently. And the new investments are not yet visible in the system. In the last 1.5 years, we have not seen new units coming up or new industries coming up. As a result, last year also, we were not having a lot of opportunity in terms of lending, except few people only competing for the interest rates. It was moving -- that was moving from one bank to another bank, not much. Even today, we see road projects, some of them have come up where we have given the sanction. In aviation industry, we have also seen few requests for Tier 2 or Tier 3 center airports where we have given in-principle sanction, not much, but then we have given in 4, 5 cases. So unless the investments come into the system, it will be very difficult to visualize at this point of time, except those sectors like cement, steel, this pharmaceutical industry, biotech industry, where they are growing, but pharmaceutical industry is flushed with funds, cash rich they are. So opportunity, what we can see is what they have declared in the budget regarding the infrastructure push. Ports, where government is looking for investment, it should come up. Aviation industry, what government is looking up, it should come up. Then we can see a large amount of demand. Otherwise, demand will be there, but then supply will be very high. Currently, supply side is very high even as on today.

Any plans to sell any of your subsidiaries?

We have already commented to the public domain related to CHOICe, that is Canara HSBC Oriental Bank of Commerce Insurance Company. We are having ownership in 2 companies. As per IRDA guidelines, we have to have ownership in the second company only to the extent of 10%. So currently, we owe 30% in PNB MetLife, 23% in CHOICe. So that forbearance was available to us up to 31st March 2021. And then we have taken a strategic call to exit...

Hello? [Technical Difficulty]

Ma'am, requested to please stay connected. We lost the line for the management. Ladies and gentlemen, we have the line for the management reconnected. Thank you, and over to you, sir.

Yes, I was replying to that. So we have already taken a call to exit Canara HSBC. It will take time. It is not a listed company. So we'll be going through valuations and other things. There is also a shareholder agreement related to right of refusal. So these things will be taken care, and we are expecting in the next 12 to 18 months, the amount can be recovered -- sorry, the amount can be received. And it could happen earlier than that, but we are putting this horizon. And we have already sold 3% stake in UTI AMC in October where we booked a profit of INR 160 crores. We'll be selling our stake in RCIL, around INR 60 crores, INR 70 crores we're expecting profit. There is one more company where another INR 50 crores we are expecting. So these are the plans at this point in time.

Okay. Sir, this recent raising of the capital, any plans to raise further going ahead in the next calendar year or the end of the fiscal year or anything?

See, as on today, if you look at our capital is 14.32%, and if you add another 30 basis points for INR 1,800 crores what we got through QIP in the month of May, CRAR will stand at 14.62% and Tier 1 capital will be at 11.8%, which is sufficient. Even if you look at 2% of worst case scenario as in terms of RBI's assessment, still we are sufficiently capitalized. So we will assess the -- we still have the headroom for AT-1 capital of INR 2,500 crores, which we can raise any time. We have not raised because of the market conditions, where because of SEBI guidelines, the prices have gone up. So we have that headroom available. We will assess the position after June quarter results are declared. Otherwise, as per my assessment, we don't require any capital during the current year, even for taking care of the growth requirement.

Okay. And sir, any number you would like to share on the slippages and disposable, however, share the numbers on the recovery trend you are expecting?

Recoveries, madam, I said, see, INR 1,100 crores in NCLT in H1. And general recovery, generally, will be around INR 3,000 crores minimum in every quarter. So we would like to maximize on that because slippages have been very high. So I will have a better estimate when we declare the results for June because still we are in COVID where we are coming out of the problem of the collections issues. Now only slowly collections are increasing. So any estimate as on today would not be appropriate mathematically. So June declaration when we come with the results, we'll have a proper estimate. Otherwise, generally, INR 3,000 crores recovery comes in normal accounts and NCLT this time compared to last year, not many accounts are there. Even including DHFL, our recovery is expected to be INR 1,100 crores in cash, whereas debt reduction will be around INR 6,000 crores, INR 6,500 crores.

The next question is from the line of Dhaval Gada from DSP Mutual Fund.

Just 2 follow-up questions. One is on the national ARC that you talked about. Just in your example, of the INR 8,000 crore, this will get knocked off completely from NPA or is the amount from NPA reduction would be lower than INR 8,000 crore? And if I understood you right, sir, you will get INR 300 crore cash and the rest will be written down against which you will hold security received worth INR 1,700 crore in the example that you gave. Is that understanding correct?

I'll split that example into 2 parts. INR 8,000 crores could be some part is written-off, some part is not written-off. Which is written-off, there's nothing discussion on that because it is completely written-off with the provision. So whatever 15% comes, it will go to my P&L directly. There is no further commitment on that. We'll hold the SRs. But SR, there is no -- since there's no outstanding, there's no provision required to be done. SR also, what you call, will be like without any book entry. However, even if we create the book entry, the amount will be curved to be SR as a provision since [ there's another account. ] With respect to amount outstanding in the book. So once the cash recovery comes, cash recovery will go there. But SR -- because it is also 100% provided, SR will be having the provision which is there against that. So technically, we'll have SR with 100% provided, since all these accounts are 100% provided accounts. Could I be clear or any...

Understood. Yes, no, no I understand. And approximately, sir, of the INR 8,000 crore, how much is right now in NPA approximately?

So majority is written-off, INR 7,500 crores.

Okay. Got it. Okay. And the second one, sir, on the collection part, sir, you said that May was better than April. Is it because of restructuring, the collection look optically better? Or [Foreign Language] this is the actual underlying collection recovery that we are seeing right now because actually system, as a whole, we've been seeing May to be more worse than April. So just trying to understand why is the difference?

No, no, it is only because of follow-up only. There is nothing. Otherwise, it has been very tough for us. But then April was not very good, then immediately, we started following up a little intensively. That is why we got. In fact, if you compare with other banks also, our position in slippage was a little worst or a little bad because of geographies as well. If you look at our geographical presence is more in North, particularly Punjab, Haryana and again, West Bengal and Northeast. These are the places, which are badly impacted in terms of, what you call, COVID. And the agitation of farmers and agitation of other factors have led to collection being impacted in Punjab and Haryana. And again, in West Bengal as well, the COVID has been very high. Whereas in other areas, our collection has been much better. So May has been better only because of the follow-up, and we are expecting it to improve even in the month of June.

The next question is from the line of Sushil from Indus Security.

I had a simple question as most of the questions they've asked you. I realized this result which you got out of PNB Housing, you've already highlighted Canara HSBC OBC. Is PNB Gilts the possibility?

See, PNB Housing or Gilt you're talking about?

No, no, PNB Housing you tested the result, which has been so positively taken by market people. You already highlighted Canara HSBC, you have a compulsion to share as per the regulation. PNB MetLife, I'm sure you will hold 30% and you may not dilute. PNB Gilt is [ another canal ] where there is a possibility because India is a equity cult market, debt market is yet to develop and you have such a big retail franchisee, has a potential to grow that market for retail participation. Currently, Gilt may not be able to do it, but you -- then norms can change over a period of time. So can you look at that, too?

At the first level, I appreciate your, what you call, in-depth understanding. Our PNB Gilt, currently, we are not thought of doing anything. We hold 74% as on today and 26% is held by the market. And because of the changes and the kind of decision what we have taken in the recent times, the market has positively reacted to PNB Housing Finance and PNB Gilt as well. Gilt although has improved in the market price. But frankly, there's no discussion with respect to PNB Gilt as on today. And if at all we discuss, it will be related to expanding as to how they can do the business in the market in the days to come by increasing the variance in terms of doing business. So only after the strategic discussion that we will look at, otherwise, as on today, we don't have any plan for selling in the stake -- for selling stake in PNB Gilt.

Sir, looking at your performance and selecting a nice partner and market rewarding on the stock price, the bank management -- the current management took shouldn't have realized the potential of PNB and PNB entity, how you can tap the market and how you can be rewarded where the current market capitalization is concerned. To reap that reward over a period of next 2, 3 years, there are any other thought processes on any of the divisions of PNB other than subsidiaries to do something dramatically different than a public sector bank, which has been doing?

There are quite a few initiatives we have taken in the last 1 year, though we may not be -- we may not have discussed in the public domain. For example, we have started a credit card company separately. Now there are 2 ways of looking at the discussion. One is already credit card market has matured in our country because, SBI started in 1998. Prior to that, very few companies was there. After 1998, tremendous maturity has come in credit card as such. If you ask me, you can also say that where is a demand for credit card. However, currently, if you look at our credit card base is very low for PNB. For a franchise of 18 crore customers, 3 lakh or 3.5 lakh credit card base is so low that within the existing, I can improve upon with the credit card subsidiary. So that is our target, which we are going there, where our income from other sources can increase. Second, the MetLife insurance, which we can take it forward aggressively where the operating income, there is other income from the insurance business can increase because COVID has brought about a high element of awareness in terms of the insurance policies in the country. Then digitalization completely going away from the branch, what you call, aspect of operational working. So these initiatives are in line with what is taking place -- what kind of changes are taking place in the banking industry. PNB is, frankly, a little behind in terms of comparison with our peers itself. If I want to compare with Bank of Baroda, probably we are not able to match in terms of the initiatives what they have taken in the 3, 4 years. So we are looking at 2, what you call, catch up with them, move ahead so that on other income basis, our contribution should be much higher, so that the dependency on NIM is reduced. That is dependency on interest income on loans and handling the liability is reduced to a greater extent. That would give a wonderful opportunity for the bank of our size in the years to come.

Sir, seeing that you have 180 million customers in the bank, why is your retail customer base not giving you sufficient business or branches who are inactive in COVID that your home loans have not even grown by bare minimum of INR 1,000 crores, INR 1,500 crores per annum?

I do agree with you, whereas the growth was much better earlier 6 months back, because of COVID it got impacted. However, we have completely revamped the organization in the month of July. Now it is working well. We are very confident of increasing the retail and MSME and particularly the housing segment in the days to come. Already proposals are in the pipeline. We have already implemented even application software where automatic processing -- automatic means uniform processing of credit underwriting up to INR 25 crores is implemented now across the country through all the outlets.

The next question is from the line of Harsh from Reliance General Insurance.

Thank you. My question has been answered.

The next question is from the line of Ankit Bansal.

Sir, I want to know that, sir, you are in the media saying INR 6,000 crores profit in FY '23. Sir, how come you -- please can you elaborate on this?

See, one important thing is, if you have observed about the provision requirement what we have done up to March, which was, what you call, quite high, now we are not expecting that much provision to be there because NPA, what you call, accretion in corporate is reduced and aging provision is also not very high, currently required. That is one area. Then in our slide, if you observe, even though our credit growth has been negative by 3%, our average credit has grown by 2.5% positively. How it could happen is we have removed the -- just like bumps across during the periods and we are not consistency in credit outstanding. We have taken various measures internally with respect to interest rate optimization, in terms of liability, in terms of assets. So balance sheet what it required after amalgamation with the legacy, what kind of rationalization it got -- it required, that we have completed by March 2021. Now if at all there is a legacy, it is only 1 DTA because we are not shifted to new tax structure. State Bank of India and Bank of Baroda have shifted in the public sector domain, and some of the private sector banks have shifted. That is the only one which is left, as a matter of legacy for us, for which there is no mandatory requirement as on today. Otherwise, the capacity of our balance sheet in terms of credit is -- has got good potential for earning the profit. On basis of these factors only, I've mentioned confidently that our profit during the current year should be around INR 6,000 crores.

The next question is from the line of Mangesh Kulkarni from Almondz Global Securities.

Last quarter, we have mentioned about the opportunities from the sale of some real estate assets. So what is status of this in FY '20?

No, so far we have received -- we have not sold any property which were there in the, what you call, domain under, what you call, tendering, but certification has not taken place so far in the real estate assets. In terms of branch rationalization, we have already closed. That means, merged 420 branches as on today, so which was a target up to 500 up to June, which we already done 420, and I'm confident of doing that. Regarding real estate, we are yet to get the amounts.

The next question is from the line of Jai Mundhra from B&K Securities.

Sir, just 2 things. One is I think you had given the slippages breakup of INR 25,000 crores. But -- so I mean, if you can repeat, I think the total is not adding up because agri, INR 5,300 crores...

No, no, I have given only INR 23,185 crores for Q4. For overall INR 25,000 crores, you can note it down. Agri is INR 5,460 crores; retail, INR 3,345 crores; MSME, INR 9,817 crores; and others is INR 6,380 crores.

Okay, sir. So the MSME is the highest chunk, right? And...

Correct. Correct. MSME is the highest chunk. And we are working on that. In the other category INR 6,380 crores, INR 2,000 crores will be -- has already been upgraded. That is under restructuring category.

Right. And do you suspect, sir, MSME, once you restructure maybe under, let's say, restructuring 2.0 or maybe you do, let's say, ECLGS, the recent week, which finance ministry and IB has approved, do you see there is a case for some of the upgrade to -- I mean, upgrade to standard out of this INR 9,800 crores slippages?

INR 9,800 crores is not eligible for restructuring. There's only recovery upgradation or if the unit is running additional funding, but it will continue to be NPA even after additional funding until the, what you call, improvement comes for the recovery. So technically, this INR 9,817 crores will remain NPA. We'll be following up for recoveries or if there's any requirement, we can do additional funding not through GECL. GECL eligibility is different than restructuring current window 2.0 is covering only accounts, which are standard as on 31/3/2021.

Right. Understood, sir. And the second question is, sir, now the merger has been complete. And I think we have mentioned also that it is a very quick in terms of time line. So now how should one look at the cost synergies, maybe for the FY '22? So you have rationalized quite a few branches and ATM, et cetera, and maybe the headcount also. So what could be the cost savings for FY '22? Or in the other way, what could be the...

FY '21 already we realized around INR 950 crores. And FY '22, we'll be realizing around INR 1,200 crores. Because branches itself, we have closed around 430 branches. We'll complete 500 by this month end. And another 500, we'll complete by March 2022.

Right. So in terms of, sir, your cost growth, right, salary plus nonsalary OpEx growth, could we see -- so this year, we have seen on a Y-o-Y basis, it was actually a decline. So could we see there's more or less the similar trajectory, I mean, let's say, INR 20,000 crores of OpEx expenses, how should it trend in FY '22?

See, main thing is, if you look at cost-to-income ratio, which has gone down very heavily, there was an exceptional case in the month of March 2020 when 3 banks were being merged. In fact, the figures are as of 1st April 2021, after the major balance sheet was prepared because of harmonizing the policy on AS 15, that is for funding to pension and other related issues, there was a requirement of higher provision to be made by the merging banks. As a result, the amount was very high. That's why you observe that percentage-wise, there is a large difference. However, at 46% of the cost-to-income ratio, it is sustainable. Even if you've seen December, it was 47% and 46%, which is sustainable. And in the year -- during the current year, the level will be same, what you are indicating to me.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Bhavik Shah for closing comments. Over to you, sir.

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

Thank you very much. Thank you.

Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.