Home >Markets >Mark To Market >Punjab National Bank manages to ward off severe second wave effect in Q1

Punjab National Bank’s (PNB) June quarter metrics didn’t spell fresh trouble, nor did it see any big relief in the wake of the second wave.

The public sector lender managed to show a healthy operating performance despite its loan book hardly showing any growth. What has come to the rescue of PNB is a sharp reduction in operating expenses through low deposit rates and incremental gains from the merger with two other public sector banks. PNB swallowed Oriental Bank of Commerce and United Bank of India with the merger taking effect on 1 April 2021. PNB has rationalised more than 500 branches and may further merge branches to reduce operating expenses. Another factor that pulled down expenses was the steady fall in cost of deposits. The 8.4% drop in operating expenses lifted the operating profit by 15.5% year-on-year. That said, core interest income didn’t show any spark due to lack of credit growth. The lender is hopeful that recoveries in the coming quarters would lift income and profitability further.

Asset quality continued to be the fly in the ointment for PNB. Gross bad loans remained above 14% and the lender saw 8241 crore worth of loans slip during the June quarter. This meant that provisions remained elevated, with 4679 crore set aside during the quarter. The lender is hopeful that it would not need to make high provisions in the coming quarters. Improving collections in July indicate that stress may reduce going ahead. That said, legacy bad loan pile will continue to bother. The only way for PNB to bring down its bad loan ratio is higher recoveries. The newly minted bad bank can help and the lender is also making efforts. “We are expecting close to 3000 crore recovery every quarter this year," said the bank’s managing director Mallikarjuna Rao in an earnings call. For the June quarter, recoveries were 3954 crore.

Shares of the public sector bank have gained 9% since April, mostly helped by a strong FY21 performance. Notwithstanding these gains, the stock trades at a discount to its estimated book value for FY22.

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