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Punjab National Bank (PNB), the third-largest public sector bank in India, surprised the Street with its profit growth in the June quarter of FY15. The bank reported a 10 per cent year-on-year (y-o-y) growth in net profit at Rs 1,401 crore, higher than the Street’s estimate of Rs 1,100 crore. The bank’s earnings have been driven by stable margins and interest income. While growth in fee income grew 1.4 per cent y-o-y, profit from treasury trading fell 47 per cent to Rs 149 crore. Other income during the quarter fell eight per cent y-o-y to Rs 1,240 crore. Earnings growth during the quarter has been driven by higher net interest income, which grew 12 per cent y-o-y and 9.4 per cent sequentially to Rs 4,380 crore, higher than the estimated Rs 4,220 crore. Net interest margins are up 30 basis points sequentially to 3.3 per cent, but remained stable on a y-o-y basis.
After a sharp run-up in stressed assets last quarter, analysts were concerned over the deviation in PNB’s asset quality. While the quarterly accretion of stressed loans continues, broadly it is in line with estimates, unlike the previous quarter. During the quarter, PNB witnessed slippages (fresh accretion of non performing loans) of Rs 2,655 crore and restructured assets worth Rs 1,452 crore. Net non-performing loans stood at 10,460 crore and as a percentage of loans (net non-performing asset ratio) stood at 3.02 per cent. Restructuring remains strong outside corporate debt restructuring (CDR) with a total number of 26 cases amounting to Rs 794 crore being restructured outside CDR, while five cases of Rs 556 crore being recast under CDR. Power and infrastructure continues to see high restructuring, according to analysts.
However, provision coverage ratio continues to remain abysmally low. According to Emkay Global, PNB’s provision coverage ratio during the quarter stood at 46.6 per cent, which is better than last year’s 40 per cent but sequentially the ratio has declined.
The bank reported a 14 per cent growth in loans during the quarter. Deposit growth, however, grew 12 per cent y-o-y. The bank is now focusing on micro, small and medium enterprises (MSME) apart from the retail segment. Credit to the MSME sector rose 25.81 to Rs 74,757 crore in the June quarter. The bank continues to focus on the retail segment and its retail loans grew 22 per cent on a y-o-y basis to Rs 39,034 crore in the quarter. Most of the retail growth has been driven by automobile loans, home loans and reverse mortgage schemes. However, analysts claim the bank’s growth could be constrained by capital constraints.
