No GDP contraction in this fiscal: PNB's Rao

Post the merger of United Bank of India and Oriental Bank of Commerce with it earlier this year, Punjab National Bank (PNB) emerged as the country's second largest public sector bank with a total business of Rs 18 lakh crore. The bank is currently headed by Ch S S Mallikarjuna Rao who assumed charge as the bank's MD and CEO last year. An optimist to the core, Rao is of the strong view that India's Covid-battered economy will bounce back very fast. "The Rs 20-lakh-crore stimulus package announced by the central government is playing out slowly. I don't think more stimulus measures will be required," Rao tells

P Madhusudhan Reddy in an exclusive interview in Hyderabad.

How do you expect the country's economy to play out in the next two quarters?

We are now seeing a lot of momentum. Rural economy is coming back very fast. We expect good traction in agriculture sector as well. The recent reforms in the agriculture brought in by the central government will provide good impetus to the sector. Consumption demand is picking up in the rural areas. The festive season, which will start from this month, will continue till March. During this period, our country celebrates Dasara, Diwali, Christmas, Sankranti and other festivals. So, we expect demand to pick up during the festive season. As banks are flush with funds now, they are ready to lend whenever demand gains traction.

But Covid-19 pandemic is spreading to rural areas. Do you see it impacting the economic activities there?

The important factor we need to observe is the confidence and psyche of the country and its citizens. In the initial days of the Covid-19 pandemic, people were frightened. But today, they have realised that there is no other way except accepting the reality and living with virus with certain precautionary measures. Secondly, we are also expecting vaccine to come out. It was initially estimated that the vaccine would be out by October. But it would take some more time. However, people started moving freely. Though there are risks, people are taking safety measures and doing their work.

Most of the global rating agencies are projecting a negative GDP growth of 11-12 per cent in this fiscal year in India. What's your take on this?

Our GDP contracted by 23.9 per cent in the first quarter (April-June 2020). That's what RBI also indicated. The IMF and World Bank predicted a negative growth of 6-8 per cent for the Indian economy in FY21. But I have a different view. In my view, our economy will grow by one or zero per cent in FY21. I don't see any negative GDP growth this fiscal. The reason for my prediction is that India's GDP has three key components – industry, agriculture and services sector. Covid-19 has not impacted the services sector severely. We have already seen some improvement in the services sector. Industry has been going through tough times. But Covid is not the only reason for that. Industry has been in slow lane for the past one and a half years. And Covid-19 has aggravated the situation. When it comes to agriculture, we have seen good improvement there. Therefore, I am of the view that the performance of our economy will not be as bad as being painted by the World Bank and rating agencies. While respecting their projections which are based on some scientific methods, I strongly feel that human behaviour can't be measured mathematically. Given the animal spirits and entrepreneurial streak in the country, I feel that the economy will be back to normalcy at the earliest.

Don't you think the economy will now need a second round of stimulus?

The Rs 20-lakh-crore stimulus package announced by the central government is playing out slowly. I don't think more stimulus measures will be required. However, the government can take some measures for specific sectors, for encouraging exports and also for import substitution. Otherwise, Atmanirbhar Bharat Abhiyan announced by the central government is more than enough for taking care of the economic recovery in the country.

What is your expectation from upcoming RBI monetary policy?

RBI monetary policy was supposed to be announced on October 1. But it got delayed. Also, the Supreme Court's judgement on interest charges on interest during the recent loan moratorium period will be out soon. The judgement will be considered. Besides, inflation trends and G-Secs prices are firming up now. So, I am not expecting RBI to reduce interest rates. However, in order to maintain sentiment in the economy, RBI may stick to the status quo. But it may come out with an accommodative stance so that it can intervene whenever there is a requirement.

Does PNB have any plans to raise capital?

PNB has decided to raise a total capital of Rs 14,000 crore this financial year. We have already raised Rs 1,000 crore in tier 2 capital in July. In next one week, we will raise Rs 1,500 crore more tier 2 capital. Of the total Rs 14,000 crore, tier 2 capital will be Rs 4,000 crore. Besides, the bank will mop up Rs 3,000 crore in tier 1 capital and Rs 7,000 crore through QIP route.

What will be the focus areas of PNB in the post-Covid era?

We will focus on rural, semi-urban economies which are very predominant. Also, we are waiting for investments to take place in urban areas. Besides, retail and MSME sectors are showing good progress. Sectorally, our focus will be on logistics, automobile industry, steel, cement and others.