At Rs 9.4 bn, PNB posts straight quarterly loss on fraud-related provisions

As a result of higher recovery, the bank's net NPA declined to 10.58% in Q1 from 11.24% in the previous quarter and gross NPA shrunk to 18.26% against 18.38% of its loans

Punjab National Bank (PNB) on Tuesday reported a net loss of Rs 9.4 billion in the first quarter (April to June, or Q1) of the current financial year (2018-19, FY19). This was the second consecutive quarter in the red for the bank, reeling from a Rs 143-billion letters of undertaking fraud.

In the year-ago period, PNB had reported a net profit of Rs 3.4 billion, and a net loss of Rs 134 billion in the last quarter (January-March) of the previous financial year (2017-18).

A reason for losses coming down was the decrease in provisioning for the fraudulent loans issued to companies of jewellers Nirav Modi and Mehul Choksi.

Source: Punjab National Bank

PNB made an additional provisioning of around 13 per cent, at Rs 18.4 billion. It had provided for half the amount of losses in the Q4. So, the total provisioning was 63 per cent till June. PNB is yet to make a provisioning of Rs 53.4 billion, which the bank will have to do by the Q3FY19, as per regulatory requirements.

“We want to split it (the losses) so that we conserve our capital and maintain the minimum capital adequacy requirements at all levels,” PNB Managing Director and Chief Executive Officer Sunil Mehta said in a press conference. During Q1FY19, the bank made a total provisioning of Rs 51 billion, he said.

The Reserve Bank of India (RBI) had allowed PNB to split its losses equally in four quarters, without the need for dipping into its reserves. Ideally, banks have to make full provisioning of losses related to fraud accounts, but a special dispensation was sought by PNB from the regulator.

Sources said PNB may provide for Rs 27 billion each in the next two quarters related to the fraud case.

Mehta was confident of getting back to profitability in FY19, despite the need to provide for around Rs 67 billion for losses related to fraud cases, mark-to-market losses, and for gratuity payments in the remaining financial year.

In Q1FY19, however, PNB earned an operating profit of Rs 41 billion against the operating loss of Rs 4.5 billion in the previous quarter. It had earned an operating profit of Rs 32 billion in Q1FY18. The net interest income rose to about Rs 47 billion as against Rs 38.5 billion.

“Despite all these turbulences, our bank’s operating profit grew 30 per cent. If you eliminate this provisioning of about Rs 18 billion from the balance sheet, we have earned a profit of Rs 9.4 billion. This was a one-off case that will be gradually factored in but our operations are strong,” Mehta said.

Though the bank’s top management maintained that the fraud case had no impact on PNB’s business and customers still had faith in the 124-year-old insitution, the numbers painted another story. The growth in domestic business dipped to 7.2 per cent in the first quarter from 12.3 per cent a year ago. Decline in overseas business contracted from 19.1 per cent to 34.8 per cent during this period.

The saving deposit declined sharply from 23.6 per cent to 4.5 per cent — showing a slower growth in bank deposits of customers.

The bank reported a healthy recovery of bad loans in the first quarter, at Rs 84 billion against Rs 56 billion recovered in all of FY18. During the quarter, two big accounts —Bhushan Steel and Electrosteel were resolved through the Insolvency and Bankruptcy Code (IBC) process. The bank got around Rs 32 billion through the resolution of these two accounts and the rest through other recovery methods. 

“The non-IBC recovery was widespread from across the country and different types of accounts. We expect to recover Rs 200 billion in the first half of this financial year,” Mehta said.

As a result of higher recovery, the bank’s net non-performing assets (NPA) declined to 10.58 per cent in Q1 from 11.24 per cent in the previous quarter and gross NPA shrunk to 18.26 per cent against 18.38 per cent of its loans. The net NPA and gross NPA stood at 8.67 per cent and 13.66 per cent, respectively, in the same quarter a year ago.

The bank expects to garner Rs 60-70 billion from the pending cases in the IBC process in the second quarter. It plans to sell non-core assets worth Rs 86 billion in this financial year. In the first quarter, the bank raised Rs 1.7 billion up to July 3 this year through sale of non-core assets.

The bank’s capital adequacy ratio stood at 10.3 per cent, compared to the regulatory requirement of at least 9 per cent. The common equity tier-I stood at 6.05 per cent against a minimum of 5.5 per cent required to be maintained in accordance with the Basel-III global capital adequacy norms.

The bank’s risk-weighted assets declined Rs 403 billion, though its gross advances increased by Rs 315 billion leading to an improvement in the bank’s asset quality.