BAD LOANS: PNB under pressure, investors opt for wait and watch policy
DSIJ Intelligence / 10 Feb 2016
As per the RBI report, stressed assets including bad loans & restructure loans would be around 11-12 per cent of the total bank loans given. Currently the amount of bad loans written off by public sector banks (PSB) is more than Rs. 2.11 lakh crore between 2004 and 2015.
As per the RBI report, stressed assets including bad loans & restructure loans would be around 11-12 per cent of the total bank loans given. Currently the amount of bad loans written off by public sector banks (PSB) is more than Rs. 2.11 lakh crore between 2004 and 2015.
Bank-wise break-up shows State Bank of India and Punjab National Bank is ahead of other banks in declaring bad debts in 2015.
India's third-largest public sector bank, Punjab National Bank (PNB) has a pan India presence with a total of 6,692 branches and 8,884 ATMs. As of December 2015, it had loan book size of INR 3,92,937 crore and deposits of INR 5,48,531 crore.
PNB has witnessed a consistent rise in bad debts since 2013. These grew by 238% between 2014 and 2015 — from Rs 1,947 crore in 2014 to Rs 6,587 crore in 2015.
PNB reported gross Non-Performing Assets (NPAs) of 8.47% in Q3 FY16. High bad loans result in high provisioning at Rs 3,776 crore in Q3 FY16. The net profit is down by 93% YoY at Rs 51 crore in Q3 FY16. This is one of the worst quarterly results of PNB in recent years.
The gross NPAs (non-performing loans) due for over 90 days stood grew by at Rs 34,338 crore with fresh additions in the quarter being Rs 9,443 crore. The fresh bad loans were from large corporate accounts in the steel and power sectors (Infrastructure loan is 18% of total loan book).
Source: PNB Analyst Presentation
In terms of key financial ratios, Domestic Net Interest Margin reduced from 3.21% in Q3 FY15 to 2.75% in Q3 FY16. Further, Cost of Deposits of the Bank reduced from 6.11% in Q3 FY15 to 5.81% in Q3 FY16. The Bank’s Cost of Funds declined from 5.09% in Q3 FY15 to 4.9% in Q3 FY16 and Return on Assets too declined from 0.53% in Q3 FY15 to 0.03% in Q3 FY16. Capital to Risk Weighted Assets Ratio (CRAR) stands at 12.20% and Tier I capital at 9.36% as per Basel III.
As per management they would still face same level bad debt in Q4 FY16. On Valuation front it is trading at 0.4 times Price/Book. Further risk of asset quality deterioration, and BV dilutive capital raise, remain a key overhang.
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