‘Whether 5% is okay is a matter of debate’: PNB CEO on RBI’s proposed guidelines on infra financing

Atul Kumar Goel, CEO and MD of Punjab National Bank, said that it would be better to wait for the final guidelines from the Reserve Bank of India (RBI) while speaking about the proposed higher provisioning for infrastructure financing.

Speaking to Siddharth Zarabi, Managing Editor of Business Today TV, the PNB CEO said that it is too early to consider the impact on the balance sheet from significant exposure of banks’ in this space.

“The RBI issued this paper for making a consultation advice for all the stakeholders whether it is a bank whether it is a a borrower. From the regulator’s point of view it is okay. It (the guidelines) is on the basis of the risk perception like timely completion of a project, which is under construction, if there is more risk and a bank is required to make more provisions, and after construction if risk has been reduced so the bank should reduce the provision requirement and so on,” he said.

“But whether 5 percent is okay it is a matter of debate,” Goel added.

According to the draft norms, when a project is in the construction phase, the lenders would have to set aside a provision of 5 percent of the loan amount. This will reduce to 2.5 percent once a project is operational. The required provisions will further be cut to 1 percent after the project has the adequate cash flow to repay current obligations.

RBI has asked for comments from all stakeholders by June 15. 

“Then we will submit our comment after we discuss it with other bankers. I think we will leave aside what will eventually happen as far as this proposal is concerned. There should not be any panic on this,” Goel said.

Speaking about the infrastructure-led growth across the country and its prospect for the state-owned lender, Goel said that infrastructure will definitely be an opportunity.

“We have formed tie-ups with some of the institutions involved in the fracture finance like IREDA, REC and we are going to sign one more tie-up with another fracture finance company also. If a big project with a long period comes to them and they are not in a position to get the entire requirement then some of the part they can give to us.”

The PNB CEO said that there is a lot of scope in the infrastructure finance segment in the country as it is firmly set on the target of being a developed nation. He cited the example of road projects from the normal toll collection to the Hybrid Annuity Mode (HAM) method and the subsequent reduction in delinquencies. “I do not foresee any challenge in the infrastructure for times to come,” he added.

According to Goel, the interest rate cycle has already peaked, and inflation in the country is in control compared to global peers.

“We were thinking the rate cut would come but it has already been delayed in short term because it depends on the so many other parameters. What is the position of the world, what is the commentary and so on. It is a only matter of time when we will see rate cuts to come,” he said.

Answering a question on whether the borrowers of the bank should celebrate an early Diwali or wait for next year, Goel said “we should hope for the good. They should celebrate good Diwali.”

“Between now and then, there are a lot of factors to play out, including what happens in the monsoon and the resultant overall impact on the economy,” the CEO added.

Steller Q4 show

Punjab National Bank reported a 160 percent surge in its net profit to Rs 3,010.27 crore in the fourth quarter of the financial year 2023-24. Its net interest income (NII) increased to Rs 10,363 crore in Q4FY24 from Rs 9,499 crore in Q4FY23 showing an improvement of 9.1 percent on YoY basis.

In the reporting quarter, the bank’s gross non-performing assets (NPA) ratio stood at 5.73 percent, as against 6.24 percent a quarter ago, and 8.74 percent last year.

Its net NPA stood at 0.73 percent as on March 31, 2024, as against 0.96 percent in the previous quarter and 2.72 percent in the year-ago period.

The Board of Directors have recommended a dividend of Rs 1.50 per equity share.