Stressed industries that have defaulted for more than 30 days should also get an opportunity to restructure their loan accounts, Punjab National Bank (PNB) managing director (MD) and chief executive officer (CEO) SS Mallikarjuna Rao said in an interview to Business Standard.
"The economy has been passing through tough times in past two years, especially for the MSMEs [micro, small and medium enterprises]. We have seen that repayments generally came in at the last minute and majority of stressed accounts wouldn't slip into NPA (non-performing assets) as the money was paid before it (such an eventuality). We need to look at such customers, too,” Rao said.
The Reserve Bank of India (RBI) had on Friday announced a loan restructuring scheme for all types of borrowers – corporate, MSME and personal loan segment. But one of the criteria for restructuring is that the borrower should not be in default for more than 30 days as of March 1, 2020. Such restructuring can be sought till December 31 this year.
There are three types of stressed assets, technically known as Special Mention Accounts, before an account becomes an NPA: SMA-0 are those in which loan repayments have been overdue for a period of up to 30 days, SMA-1 are the ones that have been overdue for a period between 31 and 60 days, while SMA-2 accounts are those with a delay of 61-90 days.
For MSMEs, the RBI has allowed all three stressed assets to avail restructuring, provided their total exposure is not more than Rs 25 crore. But for others, including MSMEs with loan of more than Rs 25 crore, the restructuring window will not be available if they fall under SMA-1 or SMA-2 categories. “The window will be deprived to those, including MSMEs with exposure of above Rs 25 crore, who have defaulted on payments of more than 30 days. We need to look into these issues,” the MD and CEO of the second-largest state-owned bank said.
He added that a special case could be made for accounts categorised as SMA-1 or SMA-2 till March 1 but have subsequently become standard or SMA-0 in the following months due to timely repayments.
Rao said that the bank’s priority for restructuring would be to look at the most stressed category i.e. SMA-2 accounts “which would become NPA at the end of September failing any repayments.” “Our first target would be such MSME accounts. We need to examine whether the unit is running or not," he added.
For personal loans, the bank will prefer longer duration of repayments for customers but for industry loans, it would consider two dimensions – cash flow and the debt service coverage ratio (which will show the ability of a firm to cover the interest). “Suppose, there is capability to cover the interest but not installments then we can give a moratorium on installments. The company will pay the interest in first year and from second year onward, will pay the installments, too. This will depend upon the visibility of cash flow,” Rao said.
Following the RBI’s diktat for lenders, PNB has conducted Covid-19 stress test which shows that the gross NPA for the lender may go up by 3-4 per cent – in line with the regulator’s estimates. At the end of March 2020, PNB's gross NPA stood at 14.21 per cent. While the first phase of the stress test for PNB focused on rating downgrades in the near future, the second phase will examine the possibility of the account becoming an NPA which will be visible in October-November this year.
PNB has planned to raise Rs 14,000 crore in this fiscal year with a target of keeping its capital adequacy ratio at 12.5 per cent, up from 12.32 per cent as of April 1, 2020, by the end of this fiscal year. The bank has targeted to raise Rs 7,000 crore through equity, much of which has been planned through the qualified institutional placement route. “We want to go to the market (for QIP) in December. We will initiate the process by the end of this month,” Rao said, admitting that raising Rs 7,000 crore would be a challenging task. The bank expects that it would be able to gather Rs 3,000-Rs 5,000 crore though QIP looking at the bank’s size and the market conditions. The government is yet to discuss recapitalisation plans with the state-owned banks.
The RBI requires banks to maintain the capital adequacy ratio at 11.5 per cent. Banks are required to maintain a minimum capital to ensure they do not lend all the money they receive as deposits and keep a buffer to meet future risks.