S C Gupta, chairman and managing director of Punjab National Bank, does not expect interest rates to soften in the near future. Gupta assures that the bank will not change its rate of interest in the next 3-4 months.
He further states that the bank's CAR stands at 11.95% as on March 31, 2005. He also says that there is no need to raise capital and that the bank will be able to maintain 20-25% loan rate.
He has noticed that the loan growth rate has been high. According to him, banks would not be able to book treasury gain.
Excerpts from CNBC - TV18's exclusive interview with S Gupta:
Will we see by the end of this year in terms of lending rates?
Considering what we have been watching for last few weeks, there is no possibility of interest rate softening. Even the reverse repo rate increased by the Governor of Reserve Bank of India about a fortnight ago do indicate that the short-term rates are likely to go up.
But coming back to Punjab National Bank, I can share with you that we enjoy a distinct advantage of our total deposit base of Rs 119,000 crore (Rs 1,190 billion); 49% under savings and current accounts, which has unabled us to keep our cost quite low.
We are not looking for any increase in lending rates, either under retail portfolio or we are not thinking in terms of even tinkering our benchmark prime lending rate (BPLR). From May 1, we had increased our BPLR by 50 bps. But softening of rate of interest in general, in the coming months, does not appear to be any possibility. But Punjab National Bank, for the time being, is not contemplating to increase lending rates; either on retail portfolio or by changing BPLR.
But we are definitely trying to analyse our net interest margins because last year, we had increased our NIM from 3.76% to 4%. So we are monitoring our NIM and within sub-PLR rates, we are trying to hike it by 25 bps to 50 bps, looking at the rating of a particular borrower. But otherwise, in general, for all categories of borrowers, we are not contemplating to increase interest rates.
Loan growth could actually slow down this year and next year. Do you see loan growth slowing down for you as a bank, and for the banking system as a whole?
According to the Q1 performance of Punjab National Bank, we are about Rs 2,000 crore (Rs 20 billion) more than March 31 level. Audited results are to be announced on July 31.
But for a bank like PNB, which has an advantage of more than 4,500 offices spread throughout the country in all states and with thrust continuing on agri lending, retail lending and SME lending, where I still find that lot of potential is available; around 20-25% growth at the beginning of the year, looking to the first three months growth, I do not think that PNB is likely to have any such experience of slow down on the credit growth.
Of course, we will have to keep people ready in the market to take up all challenges because this is one area, which is going to help us to increase our income level.
Looking at treasury income, it is already down and even the ten-year yield touching as high as 8.17%, I do not think banks will get much opportunity to book treasury gains. On the contrary, bigger banks who still have a larger portion of their security portfolio under advanced financial solutions (AFS) will have to provide appreciation. So I think we will have to look for credit growth, which is the main attraction for the banks to increase their income level.
Will PNB, at any point, have to come to the market or have to raise resources? Are you sufficiently capitalised for the next few quarters?
We closed our FY06 with a capital adequacy of 11.95%. Knowing that the market rate of interest is going to be hardened, we have already raised Rs 885 crore (Rs 8.85 billion) of Tier-II capital. So up to September, we are very comfortably placed.
We will now review, after September, whether we need additional capital and looking at the credit growth and overall capital adequacy ratio, we will take a fresh view. But today, we are comfortably placed because in Tier-II, we have already raised Rs 885 crore at a very reasonable rate of interest.
A few days ago, we were speaking to ICICI Bank and they candidly said that they could see rates hardening by as much as 100 bps, 1% point in the next 15 months. Do you think we are looking at that steeper rate hike here?
I have no reason to defer with the observation made by ICICI Bank because I do not find that in the near future, rate of interests are going to soften. But talking specifically of Punjab National Bank, we are sure that the way we are working, the way our fundamentals are and the way our cost are being controlled.
Probably in the next 2-3 months, we are not going to change our rate of interest on the lending though very recently we have increased our rate of interest on deposits under certain maturities.
We want to really increase our resource base since after October, the rate of interest on deposits will harden. So we want that; we should complete our exercise or mobilisation of resources during the next 3-4 months to a pressure of interest in the month of November-December and thereafter.
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