The Hindu Business Line : PNB phases out Rs 3,500 crore of low-yield loans

IN the first six months of the current year, Punjab National Bank phased out not less than Rs 3,500 crore of low-yielding advances, the Chairman and Managing Director, Mr S.C. Gupta, told Business Line. Most of these were Mibor-linked loans, (generally bearing rates of around six per cent).

Despite this, the bank's advance portfolio increased from Rs 60,413 crore as at the end of last year, to Rs 63,868 crore as on September 30. Thus, the bank's gross advances increased by about Rs 7,000 crore in the first half of the current year.

Mr Gupta, who took over as the CMD in May, said that the bank had re-defined its strategy to concentrate more on yields, rather than volumes.

The gambit paid off — in the first half, the average yield on advances rose to 8.37 per cent from 8.12 per cent as at the end of March last year.

Advances increased in gross terms by about Rs 7,000 crore during the first six months.

Mr Gupta said that Punjab National Bank had lent significantly in the northern region "where the margins are better than in the fiercely competitive western region". He said that the bank would focus on retail and SME segments for more advances.

Despite the increase in advances, Mr Gupta sees no need for raising capital, not even tier-II. The recent move of RBI treating balances in the `investment fluctuation reserve' as tier-I capital has given the bank an additional headroom of close to Rs 1,000 crore to raise tier-II capital (long term debt). Mr Gupta said that profits grew marginally - to Rs 780 crore from Rs 735 crore for the same period last year - because of accelerated provisioning.

Currently, 94 per cent of the bank's gross non-performing assets (of Rs 3,345 crore) have been provided for, taking the net NPA to 0.30 per cent.

He pointed out that in the future the bank would not feel the pressure of NPAs, which in any case, have been coming down. The total amount locked up in NPAs slid to Rs 3,345 crore from Rs 3,741 crore at the end of last year.

Punjab National Bank's investment portfolio of about Rs 50,000 crore yields on an average 8.10 per cent.

Mr Gupta said that a stress analysis done by the bank indicated that if the yield on benchmark 10-year government securities increased by 25 basis points, the bank would have to provide depreciation of about Rs 125 crore.

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