RBI’s infra financing guidelines no cause for panic, says PNB after record fourth quarter

PNB has an overall exposure of ₹98,400 crore to the infrastructure sector (PTI)

State-run lender Punjab National Bank plans to seek clarification from the central bank on whether its draft guidelines proposing higher provisioning for infrastructure financing would be applicable for small loans as well.

“There is no need to panic,” said PNB managing director and chief executive Atul Kumar Goel while presenting the bank’s results for the March quarter and the 2023-24 financial year.

“The regulator’s concern is only to see that projects see timely completion. We will like to get clarification whether the changed provisioning will be applicable to all categories of loans, including small loans,” he said, adding that PNB will submit its views to the Reserve Bank of India before 15 June.

The public sector bank, which reported strong fourth-quarter and full-year earnings on Thursday, has an overall exposure of ₹98,400 crore to the infrastructure sector.

Banks will be seeking clarity on what portion of their infrastructure loans would be subject to the revised provisioning, Goel said.

Focus on RAM

The banking regulator recently released draft guidelines on the ‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances—Projects Under Implementation’.

The guidelines propose a phased 5% standard asset provision during the construction phase, rising from the present 0.4% level, which industry experts fear could substantially dry up the availability of banking finance to the infrastructure sector, as well as affect interest rates on loans.

PNB has maintained that its focus will remain on strengthening its exposure to the RAM—or retail, agriculture, and micro, small and medium enterprise (MSME) sectors—for growth. In this regard, the bank targets raising the share of RAM accounts in its credit portfolio from 55% now to 57-58% by the end of FY25.

On fundraising, Goel said there was no immediate need as the bank’s capital adequacy ratio remained at a high level of 15.97% at the end of March, against RBI’s stipulated 11.5% level.

“The board has approved (fundraising through a qualified institutional placement of shares) of ₹7,500 crore, which we will bring within six months, before September,” said Goel, adding that PNB had already appointed merchant bankers for the process.

Record growth

PNB’s net profit in the March quarter jumped 159.8% year-on-year to a record ₹3,040 crore, while its net interest income rose 9.1% to ₹10,363 crore. Its FY24 profit surged 228.8% to ₹8,245 crore, up from ₹2,507 crore in the year before.

Goel credited the strong growth to overall better performance, including in terms of growth in advances, improvement in credit cost, reduction in slippages, and good profit from treasury operations.

PNB’s gross non-performing asset ratio improved by 301 basis points year-on-year to 5.73% in March. Net NPA ratio improved by 199 bps to 0.73%.

Based on PNB’s performance so far, its gross NPA and net NPA levels, which measure loans turned bad, are likely to decrease further to less than 5% and below 0.50%, respectively, by the end of FY25, Goel said.

PNB’s credit cost declined by 91 bps to 0.81% in the March quarter, and by 64 bps in FY24 to 1.40%.

Goel said the bank’s return on assets improved to 0.77% in the fourth quarter, and by 36 bps in FY24 to 0.54%. PNB expects its return on assets to improve further to 1% by the fourth quarter of this financial year, and to 0.70% for FY25.