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Economic growth should start limping back from July: SS Mallikarjuna Rao

Cost of borrowing for MSME is in a sweet position at this point, says MD & CEO, PNB.

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Last Updated: Apr 01, 2020, 05.46 PM IST
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SS Mallikarjuna Rao-PNB-1200
Tell us how the combined entity the shape and size changes and becomes bigger talk to us about the new entity which takes shape now?
Punjab National Bank got merged with Oriental Bank of Commerce and United Bank of India, effective from today. It is now a combined entity that has more than 11,000 branches across the country, more than 13,000 ATMs and has a business of little over 18 lakh crore. It is the second-largest public sector bank after State Bank of India in the country currently and there are a lot of activities which we have been doing ever since the decision came on 30th of August 2019. Pre-migration and amalgamation related activities have been properly handled in order to see that the amalgamation from today becomes very effective. But because of social distancing and lockdown in place due to Covid, which has been declared up to April 14th, the physical meetings and interactions with the customers which we had planned could not take place. Nevertheless, once this gets lifted, we would be undertaking that interaction after the lockdown. From today, the three banks together are working as one entity that is Punjab National Bank.

How much time will it take for synergies to kick in with this new entity? In how much time will the benefits of synergies start showing in your financials? What kind of rationalisation will lead to the savings and perhaps much more enhanced profits going forward?
When you are talking about the amalgamation synergy, one is the business layer which is yet to be done. What we have done already is that the processes, the products and services have already been harmonised and they have been implemented across the three banks from today. The technology pieces will be working differently until the migration takes place. We are expecting the technology migration to be completed as per the time plan in anything between six months to nine months.

Infosys and all other vendors are working on that but as far as the customer is concerned there would not be any differences. They will have uniformity in enjoying facilities with respective liability or assets in terms of the pricing, in terms of the interest rates, in terms of the charges; everything is harmonised now with respect to what advantage we derive as a merged entity. As a bigger bank, we will have more risk appetite in terms of lending to bigger projects and that is a great advantage. Earlier when bigger projects were borrowing from banks, the number of banks used to be between 8-12 whereas today, after the amalgamation across the banking industry, in the public sector space only two-three banks would be sufficient to take care of the lending requirements.

Over a period of time, the cost of updating technology and the cost of using technology for compliance and risk governance framework has been pretty high. Today as a merged entity, as a bigger bank, it would be advantageous to invest in those technologies and create a robust framework. From the risk management angle, for all these banks that is another advantage. It means the edifice of the bank can be prepared more strongly in the merged entity whether in respect of using all the tools available or using technology or in terms of best practices being followed by banks with respective customers across the country. Banks will also have an advantage of brand. If you specifically look at Punjab National Bank, in East and North East our presence was very limited. Whereas the amalgamation with the United Bank of India, that has got a larger franchise in the East and North East, will be advantageous to us. It is not only a franchise of a branch network or customer base but also CASA base.

United Bank has a CASA base of 50% of the entire liability and that is an advantage for us. With respect to Oriental Bank of Commerce, even though we both are in the same geography, the kind of clientele base Oriental Bank has got is an advantage for PNB. So, the synergies for this particular merger where OBC and United Bank are merged with Punjab National Bank are going to play a wonderful role in the next few days to come.

RBI has come out with the slew of relief measures. How do you see the environment in next couple of months in particular? How feeble do you see credit growth for the sector? What is your sense of being a banker for such a long time? There is no precedence to this environment, but how bad is the situation of the economy in your reading?
Let us discuss it in two parts. One part is prior to COVID-19 and another part is post COVID-19. Prior to COVID-19 as well the economy had been subdued. The credit growth was 13% start of April last year and it came down to around 11%. RBI in the month of January declared that it was around 6.47% that is just before the impact of the COVID-19 in our country. Even in January, when the credit growth was 6.47%, as a banker we were seeing little amount of green shoots in the economy. We were expecting the investments from private parties as well as from the government in infrastructure. You can recall the finance minister's statement where she said Rs 1,02,000 crore was in the pipeline for investment in infrastructure. Now coming back to the impact of COVID, we hope it will be short-lived. We are expecting normalcy after the lockdown. We see that from July 1st onwards the economy will start limping to positive.

The MSME sector is the ones on the receiving end. We are getting a lot of sense that payments perhaps will not be happening in time. They are cash-starved. Working capital remains a big issue for them. They are real lifeline of the economy. What are your thoughts on what kind of impact they could face? As this larger entity takes shape, how would you reach out to them and help them?
If you look at MSME, there are three main elements. One element is the marketing level which means to manufacture the goods and sell to their customers and get the money back. The operating cycle after manufacturing and getting the cash flow back was an issue that has been there for the last two or three years. Otherwise, if you look at the funding requirement, there was no problem with the bankers though the funding completely depends upon the marketing capability of the MSME. MSME per se themselves cannot create a market for themselves. We have seen that many of the state governments have taken initiative in creating marketability for the products of the MSME and they have been doing better but for the impact that COVID has created now. Coming from the banker's perspective, the cost of lending has come down drastically. As per the RBI guidelines, micro and small enterprises' interest rates were linked to repo, effective from the 1st of October 2019. And from 1st of April i.e. today onward, even medium enterprises lending rates are also linked to repo. With a drastic reduction of 75 bps, the rate reduction has been automatically passed on to those MSME borrowers. As a result, the cost of borrowing from the banks for MSME is in a very prime position at this point in time. They do not have any issue as per the cost of borrowing is concerned but the problem is related to cash flow. Their receivables realization is an area the government is also working hard for. In recent times, the government has taken a decision to ask all their departments if there is any pendency to make the payments immediately. It is an ongoing correction exercise that is working towards the betterment of the MSMEs. Banks also will work. I am expecting that as a banker after May-end, once this COVID impact is cleared, we could see some a position for the MSMEs in the manufacturing as well as in the services sector.

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