A look at the various performance ratios of Punjab National Bank (PNB) for the December quarter would indicate that the lender deserves every penny of the Rs5,473 crore capital infusion it would get from the government.

After all, India’s second-largest public sector lender has brought its gross bad loans to 12.11% from 13.7% a year ago. It has even made higher provisions every quarter and lifted its provision coverage ratio to a little over 60% from 55% a year ago.

In other words, the bank has not only put its house in order but has also built enough insurance to protect against future risks.

But these are perhaps the only numbers that look good for the bank. It pays to look at the details. PNB saw its stock of gross bad loans slip 0.2% sequentially and 3.4% from a year ago. But then, it wrote off Rs6,128 crore worth of loans during the quarter, a 62% jump in a single quarter. Its upgrades were a mere Rs1,286 crore while fresh slippages were Rs11,204 crore.

Essentially, PNB saw its bad loan stock fall not because errant borrowers began repaying loans but because they went so bad that it had to write them off. Also, the rate at which fresh errant borrowers are emerging has not abated.

What saved face was the 31% rise in cash recoveries.

PNB’s stressed asset pile is still a formidable Rs67,129 crore or 14.13%. The bank also has an aggregate exposure of over Rs18,000 crore to the 29 borrowers out of 40 accounts listed by the Reserve Bank of India, most involved in court proceedings under the Insolvency and Bankruptcy Code. It still has to provide Rs1,150 crore towards these accounts.

While these problems persist, the lender also has a hostile environment emerging from the bond market. For the December quarter, the bank had to provide Rs1,075 crore towards a mark-to-market hit on its investment portfolio, seven times that in the corresponding quarter in the previous year. Bond yields have risen further since December and are unlikely to go lower any time soon.

The challenge to rein in bad loans is still there and unfriendly markets are adding to the difficulty for the lender.

In light of this, the 6.9% increase in core income and 11.1% rise in net profit look weak. The project “Parivartan" that PNB launched eight months ago needs to bear fruit by way of a drop in slippages and write-offs. Otherwise, it would just be lip service and the bank’s largest shareholder would be displeased.

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