Punjab National Bank (PNB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Punjab National Bank's Q1 FY '22 Post-Results Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. [Operator Instructions] 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 directly prohibited, and prior explicit permission and written approval of Punjab National Bank is imperative. Please note that this call is only for investors or analysts. I now hand the conference over to Mr. Bhavik Shah from B&K Securities. Thank you, and over to you, sir.

Thanks, Stephen. Good afternoon, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to Punjab National Bank 1Q FY '20 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; Mr. Sanjay Kumar, Executive Director; Mr. Vijay Dube, Executive Director; Mr. S.K. Saha, Executive Director; and other senior officers. I would now request MD and CEO sir to start the call with his opening remarks on 1Q FY '22 results, post which we can start the Q&A session. Over to you, sir.

Yes, good afternoon to all of you. The details of our results and presentation are in the public domain. I'll just take only a few points in brief, and then I'll open the quorum for questions. If you look at the, what you call, results, CASA has grown by 7.34% and the composition stood at 45.15%. Retail term deposits have grown by 10.73% and the composition of retail term deposit and CASA stood at 91.2% of the overall deposits. Operating profit has grown by 15.5%. Net interest income has grown by 6.6%. Global NIM stood at 2.73%, which has been an improvement compared to year-on-year. Net profit has been INR 1,023 crores, it's more than 3x to last -- comparison to year-on-year and more than 75% to what was booked at the end of March. Capital adequacy ratio very comfortably placed at 15.19%. Cost-to-income ratio has been brought down to 43.64%, and recovery and upgradation together stood at INR 8,270 crores during the quarter ended June. If you look at your digital canvas 60% of the transactions are digital and a further 11% through ATM, that means 71% of the transactions are outside the branch, 29% comprising branch as well as BC network. Now coming to the areas where we will be looking for improvement in Q2, Q3, Q4, will be gross NPA and net NPA. Though the outstanding remained the same because of credit growth not being very high, the percentage appears elevated. And there is also a slippage of INR 8,241 crores, comprising retail of INR 1,548 crores, agriculture of INR 2,149 crores, MSME of INR 3,122 crores and other category INR 1,422 crores. So this is because of the, what you call, collection efficiency, which we have achieved in June and July -- June, much better, otherwise the slippage was -- it was a little high at the end of May, which has got down considerably. At the end of the quarter, ultimately, it stood at INR 8,241 crores. Further corporate credit growth and RAM growth. RAM growth has been very, what you call, moderate, whereas corporate growth was almost muted or negative, but we are looking at a good amount of growth because already, we have created a pipeline of sanctions for more than INR 50,000 crores currently, which are to be disbursed over a period of time. The other area of a little more focus will be on collection in terms of SMA accounts and a rigorous follow-up in terms of NPA accounts, particularly the retail and MSME, where we have seen slippage in the last 2 quarters at a high level. While I'm not very much, what you call, worried about retail fees because majority of the retail, we have seen in the June collection, have come back normally, and we are expecting that in Q2, Q3, the existing retail also will be upgraded and there won't be any further accretion in NPA with respect to retail, sporadically leaving few accounts. However, the case of MSME is little, what you call, stress is still there, and we expect the improvement only by March 2022 in respect to upgradation of the accounts. As far as slippage is concerned, it is almost reached the maximum. I don't expect any further slippages in the next few quarters in a big number from MSME. With respect to restructuring under OTR 2, we have done around INR 6,600 crores, predominantly from retail, that is individual borrowers, INR 6,396 crores, small business around INR 320 crores together, then MSME, INR 2,886 crores, so totally INR 6,602 crores. So maybe another INR 1,500 crores to INR 2,000 crores, we can expect before September, up to which the window is available. Otherwise, it has been a very conservatively -- we have done because we've gone for recovery first and then only restructuring we have done. Even if you look at the restructuring of OTR 1.0 related to August 6, 2020, this figure, including the corporate, remains at INR 6,787 crores, which is available in the presentation. Fee-based income is one where we are concentrating more focusly this time because it has been muted reason being the COVID and insurance business also got impacted, but they've done well in the last quarter of the last financial year. And we are expecting it to improve whereupon even other fee-based income avenues also will be, we explored very focusly to get more income on that. With respect to capital, as I've indicated, 15.19%, we are very comfortably placed. So we don't have any thinking at our end to go to the market once again for diluting the capital. However, what we will do is we'll keep just taking approval from the Board, keep an option, and we will only see if there is any requirement because generally, for our expectation of credit growth between 8% to 10%, the current capital is more than sufficient. We don't require anything because we've been successfully controlling the risk-weighted assets and seeing that the capital is converted well. And this year, we are also expecting a profit between INR 4,000 crores to INR 6,000 crores, that also will be added to the capital. As a result, I'm not expecting that we should be going to the market for capital. Though we'll keep options open at our end, but we will not be going to the market for capital. So these are my preliminary points with respect to you and for questions.

[Operator Instructions] The first question is from the line of Ashok Ajmera from Ajcon Global Services.

My compliment to you and your entire team, sir, for the fantastic results. The net profit is more than INR 1,000 crores now and the guidance of the whole year of INR 4,000 crores to INR 6,000 crores is also very encouraging. Even, I mean, on other parameters also the bank has performed very well, and you said that the even efficiency -- collection efficiency was also good. Having said that, I have got a couple of questions and observations some information points, sir. The other expenses, sir, in the profit and loss account as other operating expenses have come down from INR 2,346 crores in the last quarter, that is the last quarter of the last year, to INR 1,766 crores, almost about INR 600 crore reduction in other operating expenses. Is that going to be the same in the next coming quarters? Or it is only because of certain temporary measures or some temporary component?

No, it is not temporary. It's going to be controlled at that level only. Even if you look at the Q1 comparison of last year, it was only INR 1,849 crores and now it is INR 1,766 crores. I do agree that sequentially, it has come down. There are a couple of, what you call, onetime areas there at that point of time. Overall, further important thing is we are also rationalizing our branch network, where already by June end, we have merged more than 400 branches, 370 to 380 branches. That synergy is also coming up, and we are expecting to rationalize around, 1,000 branches by March 2022. So that synergy also will be taken forward. So there is a reduction in the other operating expenses, which will remain at that level only.

Great, sir. Sir, there is this Note #14 on the account -- on this account of fraud. So you have stated that INR 1,013 crores, which was earlier debited to the other reserves, has been now again considered back in the P&L. And your charged to P&L INR 606 crores and leaving INR 406 crores, I mean, carried forward for the future quarter. What is the...

How it happens is, can you remember, as per the RBI guidelines, whenever a fraud account is declared, we will be -- we are required to make the provision 100%. However, this 100% of provision can be spread across 4 quarters. So only fraud account, which was identified somewhere in the quarter of December or September, where the provision is deferred to be made every quarter subsequently, in between when the year-end comes, in order to properly position the capital, what RBI guidelines say is that, the deferred provision will be debited to a reserves account. And accordingly, proper statement of capital will come. And later on, once the March is over, that will be reversed to properly take care of the distribution in the subsequent quarters. So that is the reason why in the note, we have mentioned that.

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

Sir, could you please repeat the slippage figures because I could not note all of them down?

Slippage was INR 8,241 crores, comprising retail at INR 1,548 crores; agriculture, INR 2,149 crores; MSME 3,122 crores; and other category, INR 1,422 crores.

INR 1,422 crores?

Correct.

Okay. And sir, just on the stock of restructured loans, so basically you did around INR 66 billion in OTR 2; INR 67 billion in OTR 1.0; and over and above that, you have a slide, which says that in other schemes, it's INR 23 billion, correct? So INR 67 billion plus INR 66 billion plus INR 23 billion, is that your outstanding restructured book?

That is the old one. INR 23 billion is the general restructuring, which comes there, INR 2,300 crores.

Correct. But you do add it, right? So you have INR 67 billion plus INR 66 billion plus INR 23 billion. That is your outstanding restructured book?

Correct. Correct. You're right.

And sir, within the -- in your -- from your restructured book, how much overlaps with the SME that you have disclosed?

No, there's no overlap. We have already given -- if you look at the OTR 1.0, OTR 2, if you see MSME loan restructuring, as per August 6 circular was INR 1,099 crores. And as per May 5th RBI circular is INR 2,886 crores. So they are mutually exclusive, there's no overlap.

Right. No, no, I'm saying the SME loans, the SME one -- the SME overdue loans that you have shown separately, that and the overlap with restructuring?

No, no. There's no overlap.

There's no overlap in special mention accounts as in...

No, no. If you see the SMA, you're talking about SMA-2?

Yes.

No, there's no overlap. Both are mutually exclusive.

Right. And sir, just one clarification that when -- basically, when you say technical write-offs, these are accounts that have to be 100% provided as per RBI guidelines and because they are 100% provided, you write them off? Is that the correct way?

Yes, correct, 100% correct.

And sir, just one last question. In terms of your slippage, I mean, it's been at an elevated level of INR 100 billion -- it was INR 100 billion in 4Q also, if you exclude the pro forma. And then it's INR 100 billion again. So where do you -- obviously, it's because of the wave 2. But where do you see it settling? So assume that there is no wave 3, what should this number come down to by the second or third quarter?

Now that it has fixed because by June onwards, the collection efficiency has increased. March, April, May, it was impacted by the COVID second wave. As a result, in fact, our slippage up to May end was almost INR 15,000 crores, which was brought down to INR 8,000 crores because of the collection efficiency during the month of June. So this is the figure, which is the highest, which I'm looking at. Even if you look at the credit cost, it was around 1.74%. So now this credit cost will moderate and go down. So slippages will be lower than that when we look for the next 3 quarters.

Okay. So it will be lower than 100, but would there be any quantification, like, will it be INR 5,000 crores, INR 6,000 crores, any rough guess?

INR 6,000 crores, INR 5,000 crores, you're expecting per quarter, you mean to say?

Yes, yes, yes. Per quarter only.

Overall, I'm expecting anything around INR 18,000 crores to INR 20,000 crores, including this INR 8,241 crores. The average could be around INR 3,500 crores to INR 4,000 crores.

The next question is from the line of Sneha from Shubkam Ventures. Ms. Sneha, your voice is breaking up. May we request you to move to a better reception area, please? As there is no response from the current participant, we move to the next question from the line of Tejas Parekh from Citibank.

Similar to the breakup that you provided for slippages, if you could provide the same for OTR as well?

Yes, OTR, you can note it down. Under OTR 1.0, as per the August 6th circular of RBI, the amount of personal loans is INR 757 crores and corporate exposure is INR 4,931 crores, MSME launch is INR 1,099 crores. So together, total INR 6,787 crores. Coming to RBI 2nd, that is May OTR -- could you note down what I have told?

Yes. What was the total figure? 6,007...

INR 6,787 crores. And coming to OTR 2.0 as per the RBI May 5 circular, individual borrowers is INR 3,396 crores, small business INR 320 crores, MSME is INR 2,886 crores and total is INR 6,602 crores.

The next question is from the line of Jayant K. from Credit Suisse.

Sir, can you just explain this upgrade? Are there any lumpy in this INR 4,300 crores?

Which one?

Upgrades for the quarter?

Upgrades for the quarter. Yes, there are -- the couple of accounts are related to only restructuring, which have fallen NPA only during the month of March. For example, future retail is one account, where it was invoked for restructuring, but it has become NPA. Because before implementation of the restructuring, it has become NPA, so they've got upgraded. That is around INR 700 crores. Then another account of such type is MMTC, it is around INR 500 crores. So these are 3 accounts.

Only these 2 lumpy ones, rest would be smaller accounts.

Rest would be smaller accounts only.

Sir, in the pipeline of restructuring, you mentioned INR 1,500 crores to INR 2,000 crores. That would be retail or, I mean, which segment would that be?

It could be a combination of retail and MSME, but the number in retail could be lower.

Lower?

Yes.

Sir, so MSME, essentially, you're expecting more pain in the coming months?

MSME, actually, if you look at restructuring, we have done INR 3,716 crores and further in slippage also INR 3,122 crores is there. But this slippage of INR 3,122 crores only, there will be a conversion to restructuring.

Okay. And sir, this ECL changes also, you've done in...

Hello?

Yes, sir.

No, what I wanted to say is in MSME, we've reached out to the people. We need certain information and discussion before we undertake the restructuring. So the piece with MSME will be out of the slippage, only.

Okay. Okay. And sir, the ECL GS exposure, how do you see that playing out? We have INR 12,000 crores of disbursals. So the exposure to those accounts would be also around INR 40,000 crores, INR 45,000 crores. So do you think some of that also could come under pressure?

No, no, because all these accounts were standard as on 29th of February 2020, that were eligible for this [ G ECL ]. We have given -- we have sanctioned around INR 13,000 crores and disbursement is around INR 12,000 crores. And when we have disclosed INR 12,000 crores, you can say roughly the book will be around INR 60,000 crores, 5x, because 20% we have given. So this is a standard book. There is no problem on that. We have not seen delinquency in that as on today.

You guided that you're essentially seeing normalization only in FY '22 for MSME. So even if there are some of these slippages that get restructured, then where do you see the next half of the year essentially contributing to the pain?

If you look at the overall figure, INR 1,27,000 crores is our total book in MSME. Out of INR 1,27,000 crores, INR 60,000 crores is the piece where we have given [ G ECL ]. So remaining is around another INR 67,000 crores. Out of that, there is a standard category. Already, 22%, 23% is NPA. In the remaining INR 67,000 crores -- I mean, overall INR 1,27,000 crores, even 24%, 25%, if you take, it is around INR 31,000 crores, INR 32,000 crores. So INR 60,000 crores plus INR 31,000 crores, around INR 90,000 crores. So the other piece is only INR 30,000 crores where again, around INR 4,000 crores is restructured. So the fees available ultimately is a standard fees as on even 31/03/2021. So I'm not foreseeing much of an impact on that.

The next question is from the line of Prakhar Agarwal from Edelweiss.

Just two, three questions. To start with what is happening around PNB Housing, what is our thought process regarding the same now in terms of our...

Actually, no judgment is expected from SAT. So we the judgment and then take it forward, whatever the judgment comes.

Okay. But we are okay with -- initially our thought process is that we are okay with losing control in terms of initial shareholding that we've said, we are okay with that thought process? Or we have changed that thought process now?

No, there's no -- see, I don't know what you call about control. I don't understand because PNB Housing Finance, our stake is only 32.62% and 32.42% is being held by Carlyle; 9.91% is held by General Atlantic, another 9.9% is held by another company. So the FDIs are holding more than 50%. So I don't know what you mean the control. And in terms of RBI -- in terms of the regulation act and RBI guidelines, we should not hold more than 30%. So that is one more important factor. It was earlier long back a 100% subsidiary. Later on, stake was reduced quite some time back. So this, we are holding since 2019 -- 2018 or '17, the status of 32.62%.

Any indication, sir, by when the judgment could be expected? And any indication?

So difficult to say because they have reserved the judgment. So we have to wait and see how when it will come.

Sure. Secondly, when I look at your NPA, so not most from a accurate number perspective, but from a percentage perspective, when I look at your retail NPA and within that, when I look at your housing, which is in line with what we have reported at 5.24% in terms of gross NPA level and which is similar to what car portfolio is happening and probably 2x what personal loan is having in terms of NPA percentage. Why is such a behavior reflected in the housing portfolio?

See, predominantly, if you look at in the public sector domain, retail portfolio is to -- is given towards the salaried sector. So whether it is a housing or car loan or personal loan, personal loan, of course, we have pensioners also, who are getting regular income. So it is a regular income stream, which predominantly covers the entire retail sector in the [indiscernible]. In PNB, that is a position. So as a result, the COVID has impacted some of the cash flows with them. That is why collections were impacted on 2 tranches. One was up to October, the last year, it was impacted. And October, November, December was much better. And then again, April -- March, April, May, it got impacted now. So it is a phenomena, which can be attributed to only COVID. And also because not many people have lost the job or salary reduction, but they're holding back only for unforeseen circumstances to be taken by them. So that is why we have seen the behavior of collection efficiency improving very well in the month of June and in the month of July. As such, the NPA position around 5.24% in housing, I'm expecting it to go down in the next 2 quarters through rigorous followup for recoveries.

Okay, sure, sir. And just last thing, in terms of MSME portfolio, as you said, that of INR 1,27,000 crores of portfolio that you have, 23% is already NPA, then probably another INR 60,000 crores you have given under that scheme then there is INR 4,000 crores in terms of restructuring. So when I look at that pool, the stress quantum is relatively much higher than what we have seen for other banks. Any particular reason as to why you are seeing so much of stress in this segment vis-a-vis what other guys are seeing?

See, if you look at -- even in the legacy also, the NPA in MSME has been high in CMV, number one. Number two, MSME has been passing through tough time in our country since January 2019 or even a late part of 2018. That is the reason why RBI has opened a window for restructuring effective from 1st February 2019. COVID only has aggravated them. Some of the units are coming back based on the economy, how it is moving back, some of the sectors. So even today, if you assess, some sectors may do well, some sectors may take longer time for coming back to normalcy. That is why we are seeing impact on MSME. Second, MSMEs will not have inbuilt capability to take care of unforeseen circumstances. That is why they get exposed. So these are the reasons why the stress in MSME is high across the banking industry. But of course, in PNB, it is at least 3% to 4% more than the average peer group industry. We are very consciously working on that. Even if you look at the piece related to restructuring also, it is a considerable amount. We expect that by Q4, that means during the next 9 months, we will have a high level of concentration and focus to see how it can be handled. Even recently, Government of India has amended IBC to bring the prepack for MSMEs. That is also a good measure, particularly to take care of the chronically -- chronic units, they are running, but they're chronically either in NPA or SMA-2 category because of the burden of debt on them, not able to service out of their operational activity. So all these things, I believe, should be useful when we look at controlling the MSME profile and NPA by March 2022. So that is the one area where stress is persisting though there won't be any additional accretion as we have indicated even if we do the restructuring, it will be only from the slippage what has happened because we have seen most of the accounts being identified very static there. But the improvement will be there only by March '22. In retail category in the next 2 quarters, there will be a lot of improvement, particularly in housing loans, there are many states they have top -- they have put a halt on the [indiscernible]. This is -- that is also one of the reasons why we are not able to take action against some of the accounts which have become NPA. But all these things will get moderated in the next couple of quarters. Retail will do better. We will be doing a recovery in the NPA, but MSME, stress will persist for some more time.

[Operator Instructions] The next question is from the line of Rakesh Kumar from Systematix Group.

Sir, just one question that is pertaining to SMA numbers that we have disclosed for more than INR 5 crores. This is SMA-2 number. So could we get 0, 1, 2 cumulative number for the bank?

That is around INR 8,000 crores.

That is SMA-0 and SMA-1.

No, no, no. I'm sorry. I thought you were asking for less than INR 5 crores. So above INR 5 crores, bifurcation, I don't have SMA-0. It is only -- see, above INR 5 crores, what figure we have given is only SMA-2. That is around INR 12,000 crores.

Yes. 3.5%.

Correct.

But 0 and 1, sir?

0 and 1, I'll have to take. 1 is around, again, what you call, INR 6,600 crores.

And below INR 5 crore ticket size, sir?

Below INR 5 crores, that is what I've indicated, around INR 7,800 crores, INR 8,000 crores.

That is the SMA-2 number, sir?

SMA-1 also, what figure I've told you is overall, it is not above INR 5 crores. SMA-1 figure, what I've told you around INR 6,000 crores is overall. So if you want to calculate, how it will come is, around INR 26,000 crores will come entire SMA-1 and SMA-2.

SMA-1 and SMA-2. Okay.

Full, that means in totality, from 0 to above 0, like that. Out of that, around INR 8,000 crores is only 2 accounts. One is guaranteed by Government of India.

So how big that number is, sir? That...

INR 4,000 crores, INR 4,000 crores. Another account is also as per the NCLT blockage. So if you look at the SMA-1 and 2, in totality also, if you look at, it is around INR 20,000 crores or even lower than INR 20,000 crores.

Got it. Sir, another thing on the fee income side. So basically, like LC/BG numbers are actually coming down, and that is also reflecting in your market risk number. So market risk number also has come down, market risk weight actually. So how much time do you think like, obviously, the credit demand has to come and before that this non-funded demand would come. But how much time do you think it would take? Or are we participating in the PSU entities, demand on the nonfunded side?

So we are participating. In the nonfunded typically, there is a change in the modeling across the country. For example, in the last couple of years, in the absence of new investment by private sector, new revenues for any nonfunded facility in the manufacturing sector is diminished. Second, the road projects have migrated from EPC contract stage to HAM model. In HAM model, mobilization advance and other factors are there where the requirement of nonfunded facility is also little reduced compared to what nonfunded facility which EPC contractors used to take. These are the main reasons why the nonfunded has gone down across in the banking system in the last 2, 3 years. With respect to public sector space specifically, many of the nonfunded which were there in the stressed accounts have got invoked and accordingly, it has got converted into debt. So in the absence of any new manufacturing industry or any other industry coming up, the avenues for nonfunded is currently muted. However, I'm seeing that there will be good amount of traction in corporate credit coming up from the end of Q2 or Q3 onwards. This is in anticipation that there are a good number of industries. For example, steel is doing extremely well, and we look at that many of the companies are going to enhance their capacity utilization by going for further investment. Similarly, there are industries in the logistics segment, whether it is a warehousing or even cold storage, there are a lot of opportunities coming up. So the improvement more and more when it comes from end of Q2 or Q3, where we can see nonfunded facility also slowly moving down.

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

So basically, this INR 26,000 crores of SME that you said is below INR 5 crore included as well, right?

Yes, yes, everything, that is 0 to -- 0 and above, SMA-1 and 2.

SMA-1 and 2. Okay. Okay.

And out of that, I've indicated that around INR 8,000 crores, company's accounts, one of them is guaranteed by government. So if you eliminate that, it comes to around INR 18,000 crores to INR 19,000 crores.

Got it. Got it, sir. Sir, and of your total retail loans, lent on agri and MSME, but your retail loans, how much would be salaried, government and -- or how much would be government employees and how much will be nongovernment and others?

So that bifurcation, I don't have. We have to take it, but both together, it will be more than 85% to 90% because we don't give loans to others, even more than 90%, salaried class -- all are salaried class only. But bifurcation, among government and nongovernment, we don't have it. Government is predominantly high, government and pensioners. Nongovernment is restricted to only the IT companies' employees where the salaries are high. We have very stringent eligibility criteria. That is the reason why it is not given to nonsalaried -- sorry, private employment with the lower salaries.

Okay. So it's largely IT only in private, right? Because a lot of state banks say that most of the salaried loans, I mean, loans to salaried are to government. That's why I was asking, sir.

No, even ours is also government only. Other than government, it is only IT.

Got it. Sir, and the other question I had is that, obviously, you have a good recovery pipeline. And now with collection efficiency improving, there could be some rollback of your slippages also or upgrades to your 1Q slippages also. But in case there is a third wave and say, net NPA crosses 6%, then would it mean an automatic PCA? Or there's no such thing?

No, I would like to categorically say that we will never across 6% because 5.8% itself because only because credit growth has not been there. Otherwise, if you look at the outstanding level, whether it's a gross NPA or net NPA, it has remained at the same level in the year-on-year, with only marginal difference. And already, we have created a book of sanctions to the extent of around INR 50,000 crores currently. So I'm expecting that the traction for disbursement will be there by September as well as by June -- by December. So I don't see any reason why our NPA -- net NPA ratio cannot be lower than 5%, in fact. By March 2022, it would be much lower than 5%.

Got it. And sir, the numbers you gave for future and MMTC is INR 1,100 crores and MMTC, I did not catch. What was it?

INR 500 crores, INR 500 crores.

Sorry?

INR 500 crores.

INR 500 crores MMTC. Yes. Okay. Okay, sir. Sir, and just one last question. If you could highlight what recoveries you are expecting through the year?

Recoveries, there is a -- there are totally INR 12,000 crores we have identified outstanding in NCLT category, where we are -- we expect the cash recovery of INR 5,200 crore. So INR 5,200 crores are cash recovery. We'll reduce NCLT by -- our debt to outstanding by INR 12,000 crores. Other than that, we generally get a recovery minimum of INR 3,000 crores every quarter. So if you calculate like that INR 9,000 crores and INR 5,000, INR 14,000 crores cash recovery or more than INR 22,000 crore in reduction in debt we are expecting.

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

So first question is a clarification on NPL recognition. Do we follow a daily tagging norm or classifying NPLs?

Yes, yes, we are following daily.

Okay. It's on an automatic basis.

Yes.

Okay. And the second clarification to kind of come back on the SMA-2 number. The last quarter, we gave a number of INR 33,000 crores for SMA-2. That has gone down to INR 26,000 crores, including SMA-1 and 2 as of June?

Correct. Correct. Correct. SMA-2 only, if you take, we have given you above INR 5 crores of INR 12,000 crores and below INR 5 crores is around INR 8,000 crores, that comes to around INR 20,000 crores in SMA-2 and 1 and 2 together, it comes around INR 26,600 crores or INR 26,700 crores. Now, this also, if you look at, there is an amount of INR 7,000-and-odd crores, INR 7,500 crores or INR 7,600 crores, comprising 2 accounts, one is government guaranteed, central government guaranteed. Another one is, which has not become NPA because of NCLT. So if you remove that, remaining are all the accounts, others. We have given the figure bifurcation also.

Sure. And sir, second one is, why has there been a slower sanctions under the ECL GS window, given that the SME pain has continued this year as well?

No, there is no slower sanction. Actually, if you look at when the ECL GS 1.0 came, all the accounts up to INR 25 crores were eligible, which were standard as on 29th of February 2020. Afterwards, in 2.0, they have enhanced to INR 50 crores; 3.0, they've taken up to INR 500 crores; now 4.0, without any limit. So originally, we have sanctioned INR 12,000 crores. Later on, again, another INR 1,500 crores, we have added in the other categories. So this INR 13,500 crores is the eligible category where we have done the sanction, and disbursement is a little lower, INR 12,000 crores to those accounts. So the system comprises around INR 65,000 crores of the composition out of INR 1,27,000 crore of MSME.

Okay. Okay. Got it. And sir, last one is that there is a sharp increase in the AS 15 cost this quarter compared to March. Any specific reason for that?

No, there is no specific reason. It is only a normal accretion. So what has happened is at the end of March, we have done the residual figure of the estimates, what we have done for the year 2021. Now it is a fresh estimate. That is why we have taken. It is a little more than what was there last year -- last quarter.

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

A couple of questions. One is on your credit cost, so assuming, for example, in the worst case and let us say, no significant recovery comes, what would be your aging provision requirement for full year FY '22? And then it would be -- I mean that would be the outer limit because during the year, you would have some recovery and upgrade. But assuming there is no recovery, what could be the, let us say, aging provisions for the -- for full year '22 or maybe for the next 9 months?

Next 9 months, it will be around INR 4,000 crores.

So I mean, if you go by [indiscernible] that is all you need to provide?

Correct, correct.

Understood. And second, sir, on your growth, so now you have the probably all-time high CET1 and your cost of funds is also -- if I see the slide, then it shows cost of deposit around 4% and cost of funds at around 3.5%. What -- I mean what is the kind of growth that you envisage? And any particular sector where you want to become more, let's say, I mean, more focused on?

See, 8% minimum growth we would like to have. We would like to target at least 8% growth minimum, number one, in credit. And the number 2, the sectors are, anywhere, road projects are coming up, we are taking -- we are portering in road project in a very moderate level. That means we are not crossing in any deposit more than INR 300 crores, around INR 200 crores, INR 250 crores, we are taking. Good projects are coming under Bharatmala under HAM model. So that is one segment. Second, we are looking at even warehousing and cold storage. We have already identified some of the accounts, and then even other activities. Even in steel also, we have seen some of the companies coming up for enhancing their capacity and investing further. There also, we have seen the opportunity. Refineries also, a good amount of opportunity is there. Even in the gas pipe -- gas means domestic gas pipelining, opportunities are also there, even though it is a very small level, but then not less than INR 200 crores to INR 300 crores at participation level. So these are all the areas where we are expecting a good amount of traction to come.

But the 8% is give or take, what is the current system rate, maybe 1% higher. So I mean, you would -- at best, you would be matching system growth rate. Is that the implication?

I can say that because what happens is the quarter 1 has not been very high in terms of the credit growth. So if you remove one quarter out of 8% for a year, effectively it becomes 10% for the 3 -- in next 3 months. So that is the reason why that is an estimate which we would like to achieve. If you look at what RBI has estimated, by March '21, the credit growth has been around 6% to 6.2% in the commercial banking, that is scheduled commercial banking sector. If the GDP grows by 9.5%, we can expect credit growth at 10% overall in the year. But for a majority of the banks, Q1 has been very muted one. I have not seen any public sector bank or majority of the banks are showing a great growth in the credit overall. Because retail and MSME, our RAM has grown, but the corporate side has been very muted or negative. So considering these factors, even if you take 10%, divided by 4 multiplied by 3, what you call it is -- sorry, divided by 4 and everything you have to bring it in next. So you require around 12% to 13% growth in the 9 months in order to get a growth of 10% overall in the year. So it appears to me, definitely a very challenging growth required for the banking industry, even for PNB.

Understood, sir. And on your slippages, sir, on agri slippages, so it is very controlled, let's say, INR 2,150 crores. But at least the -- just wanted to get your perspective on what is happening in Punjab, Haryana, et cetera, all this farmer agitation, et cetera. So have you seen any impact? Or do you think that at least from banking side that may not have any impact at all? I mean, apart from maybe some amounts here and there, but -- or that is a risk?

No, no, no. See, if you look at on the cropping pattern getting the money back, I don't think impact will be very high in terms of the farmer agitation. Because even if the farmers are participating in agitation, their agriculture activity is in progress. The only challenge could be getting the people at the right time for renewal of limits and ensuring that the amount is received. And again, they have used for the sake of crop is only timing. So there could be a timing differential, but I'm not seeing very high level of impact where the accounts will become NPA. So even if you look at, INR 2,149 crores is not a small amount, where in 1 quarter we have added. But in the next few -- next quarters, next 3 quarters, I don't think that kind of agriculture NPA will become.

Right. So I'm saying there should not be any material impact from whatever is going on in terms of agitation, especially in Punjab.

Correct. Correct. Correct. Unless some political statement, we will waive the agriculture lending. Otherwise, nothing will happen of that sort.

Understood. And just two questions, sir, more on your SMA-2 number. So these lumpy accounts, they are already there in the SMA-2 number, right, which -- that is how your corporate and others are INR 8,600 crores, right? They are sitting in SMA-2 and these 2 lumpy accounts.

That is -- out of the SMA-2, out of that INR 8,600 crores, as I've indicated to you, INR 7,000 crores is only 2 accounts. So one is central government guaranteed. Another reason because of the NCLT, it is remaining there.

And what is the provision that you have made on the NCLT stay account, sir?

As on today, it is not -- it is standard only.

But sir, most of the other banks, they have started making provision on that account.

Correct. Correct. We've also done that. In order to create cushion, we have also done that.

So what is the provisioning that you are carrying, sir, on that?

No, it's not very high. Initially, see the asset becomes substandard initially. So to that level, we have done.

15%, around? Hello?

Yes, up to that level. It's not very high.

Yes. No, no. So 15% is also decent, sir. I mean this is what maybe other banks would have taken. And the last...

Actually, we have done around 10%. We'll be adding another 5% by the next year, so like that we are moving.

And last question on your tax side, sir. So you will also have accumulated losses from erstwhile United Bank and OBC. So what is stopping you from using those accumulated losses and not paying any tax?

We are doing that. Whatever we have shown as a tax payment, it is, in fact, adjusted in as the accumulated losses. DTA is also effectively reduced.

Okay. So this actually goes in reduction of DTA, right?

Correct. Correct. Correct.

What is the outstanding DTA, sir, if you have that number handy or those not have moved materially from about last time?

Around INR 20,000 crores.

The next question is from the line of Sushil Choksey from Indus Equity.

Sir, with your CASA at nearing 45%, and you've indicated on advances that you may go as per system around 8%. Your advances are already at INR 6,00,061 crores and unavailed or sanction pipeline is INR 50,000 crores. So your CD ratio still will remain around 65% only.

So CD ratio can go up to 69% by March '22.

So that's your indicative guidance that you mentioned on credit as you take...

We would like to take it up to 69% roughly.

Okay. So based on the CD ratio, and you're not expecting much slippage, what is your guidance on credit cost, sir?

See, at the end of Q1, it was at 1.76%. So the guidance that we had given last year, we remained, that is 1.25% to 1.5%.

So that you are very comfortable with the currently?

Yes. Yes. I think -- because it was only 1.76%, that also with a slippage of INR 8,241 crores, I'm expecting it to moderate down in the next 3 quarters, where upon the slippage -- the credit costs will go down, and it should hover around 1.5%.

So what's your digital expenditure plan for entire bank system?

See, digital expenditure, it is very difficult to say because it comprises 2, 3 dimensions. One dimension is the entire hardware where we pay the AMC for such a huge bank, that is a good cost. Suppose that the AMC cost we remove and start it as a technology cost, and we segregate digital separately, yes, definitely, we have a lot of initiatives taken to move in that direction. But I don't look it as a cost. For example, digital branches, we are inaugurating. On pilot basis, we have opened around 3 branches now as on today. It is a self-driven branch banking. Customer acquisition is there. Then pre-approved loan disbursement also automatically happens in the branch besides using the channels, which are available there. There will be only one person, who will be the facilitator. So on pilot, we have done 3 branches. Now we'll be increasing this number to roughly around 200 by March 2022. So there, it is not the cost, which is important. It is driving away the transaction cost from the branches through digital. So I'm not looking at digital as a cost. It is a business unit funding. On the contrary, it gives me more advantaging profit.

Sir, do you estimate the retail loans and SME loans would be fully digitized in next 12 to 24 months?

It will be very, very challenging statement. We have only started with baby steps now in terms of digital -- end-to-end digital lending in personal loans and Mudra loans. These two -- personal, we have already pilot tested and now we are going for full-blown position. And in terms of Mudra, we are doing pilot and, by this month end, we'll go for full implementation. However, if you look at the nomenclature of public sector banking space, the kind of customer base we are having, I don't think we would have converted fully, but our target is at least if we are able to cover 50% to 60% of the personal loans in new personal loans, it will be a great achievement for us in the next 12 months.

When you mean digitization, what kind of data are we looking at?

It is -- first of all, current category, what we have started is only preapproved. We have done some fuzzy logic in drawing accounts for identification to be given loan, and we have communicated to them. So any time, even by sitting in their house, through the system, they can connect. And the loan will be automatically credited within, you can say, maximum 30 minutes to 45 minutes because he is already preapproved, number one. Number two, already documentation, eSign, everything is provided, and he's guided through the system. So if it is a preapproved account, maximum 30 to 45 minutes for giving a loan to him, it gets credited to his savings account.

But to stay in competition and if you have to digitize housing loans or auto loans or tractor loans or any personal loans, what kind of TAT can we assume on overall experiences?

See auto loans, we are finding very, very challenging. Currently, even when we are trying very aggressively, we are able to achieve in 3 days or something like that. But whereas in private sector, they are doing across the counter, maybe maximum within 1 day of turnaround time. We are working very hard in that dimension. But with respect to tractor and housing loans, maybe if we are able to achieve by 4 to 5 working days, provided all the documents already. The question of time, what it takes is the legal opinion and then search reports what we obtained for the documents. In private sector, what happens, they completely -- project, they underwrite and they do the entire working of the project, entire billing and all the housing loans are sanctioned within maybe 2 working days or 3 working days. So these gaps are there, we are trying to work out on that.

But only thing -- last thing is all the modules will be integrated in our system or there will be stand-alone separate module, sir?

Which module, which module, you're talking about?

Digitization models.

No, no, it will not be standalone. Otherwise, how within 45 minutes it will happen. It is connected to CBS. And even the loan -- loans underwriting -- exemption and underwriting also, we implemented technology. I think if you remember last time, I've told that we are implementing this, and now we have completed up to INR 25 crores. Across the country, uniform process of sanction, appraisal sanction and underwriting is done up to INR 25 crores. So up to INR 25 crores, 95% of my number of accounts are covered. So above INR 25 crores, the number is less, which is [indiscernible].

As there are no further questions from the participants, I now hand the conference over to Mr. Bhavik Shah for closing comments. Over to you, sir.

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.

Thank you very much. Thank you.

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