PNB MD Mallikarjuna Rao on setting up of a Bad Bank – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/pnb-md-mallikarjuna-rao-on-setting-up-of-a-bad-bank/articleshow/80724316.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23Synopsis

“We expect that within one year’s time bad bank should be doing much better,” he noted that in the initial stage banks will not get any money as it is only transfer of assets and that money will come only when a transparent process of bidding takes place.

The proposed bad bank to resolve stressed assets should do much better after a year of its operations, saidPunjab National BankNSE -0.86 % managing director SS Mallikarjuna Rao.

“We expect that within one year’s time bad bank should be doing much better,” he noted that in the initial stage banks will not get any money as it is only transfer of assets and that money will come only when a transparent process of bidding takes place.

PNB on Friday posted a net profit of Rs 506.03 crore for the December quarter as against a net loss of Rs 492.28 crore in the corresponding period last fiscal. This was mostly on account of reduction in bad loans. PNB’s gross bad loans ratio came down to 12.99% in October-December period as compared to 15.34% a year ago.

Finance Minister Nirmala Sitharaman in her Budget speech had announced to set up an Asset Reconstruction Company Limited and Asset Management Company to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization. The government has clarified that the proposed ARC will be set up by state-owned and private sector lenders.

“It is a starting point, ecosystem has to develop,” he said adding Bad bank may be a process mediator, where they are aggregating assets and selling it in the market transparently.

“Once the things go in motion there will be a cash generation after the bidding is over and the self-sustaining capability of the bad bank comes immediately after second successful bids do happen in the market,” he said.

PNB expects better recoveries in stressed assets. “There are big major accounts such as Bhushan Power and in that we are anticipating cash recovery of Rs 3,800 crore,” he said, adding that he expects good recovery from theDHFLNSE -4.92 % account as well.

The bank is also looking to raise capital through the qualified institutional placement (QIP) route. “We are also actively looking at going for the QIP again with respect to the remaining Rs 3,200 crore to be acquired from the market at an appropriate time…it could be in this fiscal also,” said Rao.

The bank has sold some of the non-core assets including sale of its holding in UTI Mutual Fund. Rao noted that the bank expects to mobilise Rs 500 crore from sale of real assets by June 2021.

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