Operating performance of Punjab National Bank (PNB) in the September quarter was impressive and drove immediate gains in the stock, but there are some questions in its balance sheet.

Photo: Bloomberg

Operating profit grew 20% from a year ago. Higher investment yields and lending rates meant that net interest margins rose 10 basis points over the June quarter. One basis point is one-hundredth of a percentage point.

But, and this is a big but, the bank’s asset quality doesn’t present so pretty a picture. Indeed, if PNB didn’t have to set aside 37.5% more for dodgy loans and restructured assets, the net profit figure would have been far higher.


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Matching pace (PDF)

Quarterly performance (PDF)


At the end of September, gross non-performing loans as a percentage of advances grew 14 basis points from a year ago to 2.05%. While the metric was more or less the same compared with the June quarter, the big blow came in the form of restructured loans.

PNB restructured loans worth about 4,000 crore during the quarter. Sure, the sharp rise was owing to a lumpy 1,750 crore rejig on account of the Tamil Nadu Electricity Board, but it does indicate that the bank is facing some stress on the asset quality front, especially in the power sector, where it has exposure of some 15,800 crore.

That takes the total loans rejigged in the power sector to 2,150 crore for the half year ended September. The restructuring also means that PNB’s total restructured assets now account for some 7.8% of its total advances, among the highest in its category.

The bank has stopped lending to the power sector, but a slowing economy will put more pressure on asset quality across sectors—iron and steel, and finance were the other areas where loans were rejigged in September.

That in turn may depress the stock, which is trading at a premium to most of its public sector peers, except State Bank of India.

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