Punjab National Bank: the devil is in the details

The road to recovery for Punjab National Bank is a long one because maintaining this pace of recovery and upgrades would be a key challenge going ahead


Gross non-performing assets (NPAs) of Punjab National Bank as a percentage of advances stood at 13.75% at the end of the June quarter, which was higher than the 12.90% seen in the March quarter. Photo: Pradeep Gaur/Mint
Gross non-performing assets (NPAs) of Punjab National Bank as a percentage of advances stood at 13.75% at the end of the June quarter, which was higher than the 12.90% seen in the March quarter. Photo: Pradeep Gaur/Mint

Punjab National Bank (PNB) turned profitable in the June quarter. Surprisingly, the state-run lender, widely expected to post a loss, clocked a net profit of Rs.306 crore. So, why did PNB shares plunge nearly 3% on Thursday after the announcement of its June quarter earnings?

The stock was punished because asset quality concerns are still not behind the bank. Gross non-performing assets (NPAs) of the bank as a percentage of advances stood at 13.75% at the end of the June quarter, which was higher than the 12.90% seen in the March quarter. Similarly, net NPAs also surged to 9.16% in June from 8.61% in March.

Though net profit has plunged on a year-on-year basis, the saviour was a treasury gain of Rs.601 crore. The provision coverage ratio, excluding technical write-offs, remains at 37%, which is way below comfort level, as brokerage Reliance Securities pointed out in a note. Net interest income declined 9.8% from a year ago, hit by very slow loan growth.

The silver lining is that another key parameter—fresh slippages (or NPAs added during the quarter)—stood much lower at Rs.7,533 crore against Rs.23,545 crore in the preceding period. Even so, it’s not a small figure.

Yes, the recovery of bad loans and upgrades of accounts earlier classified as non-performing assets improved during the June quarter.

Cash recovery was Rs.4,830 crore and upgradation stood at Rs.1,181 crore during the quarter. PNB’s restructured book was at Rs.18,909 crore in June against Rs.20,144 crore in the March quarter.

But the road to recovery for PNB is a long one because maintaining this pace of recovery and upgrades would be a key challenge going ahead. The pressure on the stock is, therefore, likely to remain.

Shares of PNB have run up significantly since May, largely because of the up-move seen in most public sector lenders; but, fundamentally, nothing much has changed for PNB, say experts. This weakness is reflected in PNB’s valuation, which lags behind peers such as State Bank of India and Bank of Baroda. In the past one year, PNB’s shares have largely underperformed the Bank Nifty.

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