State-owned Punjab National Bank (PNB) is looking to recalibrate its non-performing loan classification and branch network following its merger with United Bank of India (UBI) and Oriental Bank of Commerce (OBC), said PNB managing director and chief executive officer S.S. Mallikarjuna Rao.

Rao said the Reserve Bank of India asked it to harmonise the bad loan accounts of the three banks and the ensuing provisions after the merger. PNB has already provided for 1,500 crore in the third quarter, but will have to set aside another 700-800 crore in the fourth quarter. The bank made a provision of 4,445.36 crore for bad loans at end-December, compared to 2,565.77 crore a year-ago.

“If a single borrower has exposure among three banks, and it is an NPA, we need to look at what kind of asset it is. Suppose it is substandard with PNB, and doubtful with OBC, I’ll have to make them doubtful—so, there will be an increase in provisioning requirement. Second, provisioning increase also happens through ageing. Sometimes the NPA date in both banks, even though the borrower is same, could be different. As a result, aging will happen. We have studied all those things and, according to that, provisioning was done in December. A little amount is left to be done by March, and that could be 700-800 crore."

Rao said the bank was also looking to rationalize 500 branches, and will use existing branch licences to open new branches. PNB has 7,037 branches, OBC 2,371 and UBI 2,055.

“Our objective is not to close down branches. At the same time, we cannot run a branch which is just side by side, or over and above. So, our objective will be to first find out the branches of three banks which are located within 500 metres. Then, we will rationalise those before 30 June, 2020. The licences which get freed up will be used in opening branches elsewhere. From 1 July we will study more comprehensively regarding the rationalization based on the business," he said.

PNB reported stand-alone net loss of 492.28 crore for the December quarter due to substantial increase in bad loan provisioning. It had posted net profit of 246.51 crore for the year-ago period. In the September quarter, it posted a profit of 507.05 crore. Gross non-performing assets (NPAs) of the bank stood at 16.3% of gross advances in end-December. PNB is in the process of merging UBI and OBC with itself to create India’s second largest PSU bank on 1 April. Rao said 34 committees were formed to look into the businesses, processes, products and risk governance structure of the three banks.

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