PNB net seen rising 11% to Rs 1,600 cr this fiscal

Punjab National Bank (PNB) is likely to earn a net profit of Rs 1,600 crore in the current financial year to March compared with Rs 1,440 crore a year earlier, said S C Gupta, chairman and managing director, on Wednesday.

Gupta said the bank's net interest margin was likely to remain unchanged at around 4 per cent during the current year.

"I do not know how much my (bond) portfolio will depreciate if interest rates harden from here. While I'm hopeful of a 15 per cent growth in net profit in the current year," Gupta said.

At Rs 1,600 crore, the bank's net will rise 11.1 per cent year-on-year. Gupta said the bank had earned a treasury profit of Rs 458 crore in 2005-06, of which Rs 205 crore had come from transactions in the secondary equity market.

"This year, I don't think we will be able to repeat last year's treasury gains, as both stock and debt markets are volatile. In my opinion, total treasury profit for the current year should be around Rs 250 crore," he said.

Gupta said PNB currently had a direct investment of Rs 400-500 crore in the equity market but there were no plans to raise equity market exposure as of now.

"We will take a fresh view on equities once the current volatility ebbs. For the moment, we are containing our exposure," he said.

The head said his bank had recovered most of the losses on its equity portfolio incurred in last week's crash. The 30-stock BSE Sensex had lost 1,346 points last week followed by another 457-point fall on Monday.

Trading on the Bombay Stock Exchange and National Stock Exchange had to be suspended for an hour on Monday after benchmark indices plunged over 10 per cent.

"We did not exit when markets fell... Had I exited, we would have suffered a substantial loss. In fact, we have trimmed our losses by 60 per cent," he said.

The bank has not received any request from market players for margin funding. Finance Minister P Chidambaram had on Monday asked to provide liquidity to meet margin calls after the market crash.

Gupta said the bank actively participates in the initial public offering market. The bank had got 1.1-million Reliance Petroleum shares in the IPO.

The bank had also got Reliance Petroleum shares worth Rs 159 crore in the pre-IPO placement.

"We are short-term players in the IPO market, and normally try to unwind 80 per cent of the allotment (in IPOs). In fact, we sold our Reliance Petroleum IPO allocation at Rs 88 per share and made a profit of Rs 3-4 crore," he said.

In April, Reliance Petroleum had raised Rs 2,700 crore via its IPO. The shares received in pre-IPO placement have a one-year lock-in.

INTEREST RATES
Gupta said he expected interest rates to harden, and the yield on the 10-year benchmark sovereign bond""7.59%, 2016""was likely to touch 7.7% by September from its current level of 7.60%.

"There is no possibility of the yield (on 10-year benchmark) to fall below 7.6%," he said.

Gupta, however, said there was no pressure on the bank to hike lending rates.

"In the last one year, we have realigned interest rates on our short-term loans, weeded out floating rate deposits, and raised exposure to current account and savings account deposits to 49.5% from 47%. This has helped us bring down our cost of deposits," he said.

Gupta said the bank's net interest margin had risen to 3.98% in 2005-06 from 3.77% a year earlier. "There is little pressure on net interest margin and we are looking to maintain it at around 4%. In fact, we could do slightly better than that," he said.

Gupta said the bank was looking to disburse 150 billion rupees in the current financial year, which will take its total advances to 900 billion rupees compared with 746 billion rupees a year ago.

PNB hiked its benchmark prime lending rate to 11.25% from 10.75% from May 1.

"This hike (in BPLR) will be available to me for 11 months, and I expect yield on advances to improve by 50 basis points to 8.75% in the current year," he said.

Gupta said the bank had transferred gilts worth 65 billion rupees in hold-to-maturity category in April.

Since this component will not be marked-to-market, the bank will not have to book any losses on this part of the portfolio if yields rise.

NEW BRANCHES
The PNB head said the bank was likely to open branches in Canada, the U.K., Singapore and Hong Kong in the current financial year.

"We already have Reserve Bank of India's approval for these branches. We may open at least two branches or all the four branches by Mar. 31," he said.

The bank also plans to open 40-50 branches in India in the current year.

On a day when the stock market fell with the Sensex down 250 points, the Punjab National Bank stock closed higher at 417.60 rupees on the National Stock Exchange, up 0.2% over Tuesday.