At a time when the banking sector, especially public banks, is hit by the Punjab National Bank fraud, DINABANDHU MOHAPATRA, MD and CEO of Bank of India, in an interview with George Mathew, says the entire system procedure can be relooked and wherever improvement has to happen, it should be done. Mohapatra said: “PSU banks are vital and essential for the development and growth of the nation.” Excerpts:
Do you think there’s a case for privatisation of PSU banks? Have they lost their relevance?
Ownership is important but the contribution is more important. Each type of banking – public, private or foreign – has a different role. The entire green revolution was driven by public banks. This was followed by white revolution. Then telecom revolution happened which was largely supported by PSBs. Roads, airports and recently financial inclusion… all these were supported and driven by PSBs. Today, all households have banking and insurance facilities.
During demonetisation, PSBs played a major role. PSBs are vital and essential for the growth of the nation. True, there’s scope for improvement. PSBs have implemented core banking solutions and they are adaptable and 67 per cent of branches are in rural and remote areas. They have made a significant contribution. They (PSU banks) will become stronger and they will be in a better position to take care of the requirement of the country.
Do we need so many PSBs?
India is not a country, it’s a continent. Each bank has a definite geography. Even the smallest PSU bank has a 100-year old history. They should harness their potential and focus on their strength. If a particular bank is good in a particular service or product or in a geography, it can go for differentiated banking. It’s a question of reaching out to the public. Tomorrow, India is going to be the investment destination of the world. You need banks. If some correction is required, that can be done. There’s enough room for the right kind of business.
What’s the mood in the banking sector after the `13,000-crore Punjab National Bank fraud and defaulters fleeing the country?
Every action has its own reaction. Today, everybody has faith in PSU banks. The trust is intact. That connect with people is huge. These discussions will lead to better improvement in systems and procedures and efficiency. The entire system procedure can be relooked and wherever improvement has to happen, it should be done. It will help everybody.
Is resolution of stressed assets going at the right pace? Do you see big haircuts in the process?
Initially, it was not moving at the right pace. If you observe the recent bidding process, it’s going in the right direction. By April-end, some of the big accounts will be resolved. The response has been good. Many big accounts are in the last stage of resolution. Haircut in these accounts has come down. Initially, the bidding was very low but now bidding has been good and there’s good competition. Bank of India will see some reversal of provisions. Some of the accounts were 100 per cent provided for earlier. So there will be some write-back.
Will the level of bad loans increase with RBI scrapping various loan recast schemes?
Most of these accounts will be booked in March quarter. They will be identified in March quarter. Whatever downgrade has happened in December… out of that, Rs 9,000 crore loan against SBLC (standby letter of credit) has been recovered in March quarter. This will be helping our bank.
Many banks recently increased deposit and MCLR rates. Do you think interest rates are set to rise in the system?
The interest rate is generally the function of demand and supply situation. The economy is expected to grow and the RBI has predicted a 7.4 per cent growth which is more than last year. Of course, liquidity will be comfortable. Each bank will take a call on the basis of demand-supply conditions and their liquidity position. Generally, it will not change at least for some more time… maybe two quarters.
The rise in bond yields has hit banks badly. Do you think the RBI move to spread losses over 4 quarters will help banks?
It’s very good and timely move. At the same time, they have to prepare for the investment fluctuation reserve (IFR). Banks should build up IFR to meet eventualities in the future. There are many challenges this time with regard to the bottom line. Bond yields this quarter was not that higher in the fourth quarter when compared to the previous quarter. To that extent, banks will not be bleeding that much but some marl-to- market losses will be there. Moreover, new guidelines have come. We have to identify some of the accounts accordingly and they will be requiring more provisioning. We have to provide for accounts referred to NCLT as per ageing requirements.
Can we expect a rise in credit offtake after the RBI increased the growth forecast?
Credit offtake is the product of economic conditions. Now the economy is coming back. If the economy improves, private investment will be there and new projects will be initiated. By that time, resolutions stressed assets at NCLT will be addressed.
Will 2019-20 be a better year?
In India, surprises keep coming. Unless some unwanted and unexpected surprises come,
I think next year will be a much better year.