Punjab National Bank Gains On Better Asset Quality

India's second largest public sector bank, Punjab National Bank (PNB), saw its share price moving up by almost 5% after announcing its result for the quarter ending March 31, 2013. At the time when other public sector banks are witnessing a deterioration in asset quality, PNB's stable asset quality on a sequential basis made for a pleasant surprise.

The Gross NPAs as percentage of advances have declined from 4.61% at the end of Q3FY13 to 4.27% in Q4FY13. In the same period, the net NPA of the bank went down by 21 basis points. The management's concentrated efforts to volume growth at the cost of asset quality have reaped benefits.

There was some disappointment on the net profit front, though, which declined by 21% on a yearly basis to Rs 1130.8 crore from Rs 1424 crore in the same quarter last year. The reasons for such a fall may be the increase in provisioning, which went up by 44% on a yearly basis to Rs 1477.7 crore. Besides, unlike its public sector peers, PNB's Other Income saw a decline of 8% YoY to Rs 1174 crore. The Net Interest Income (NII) of the bank grew by 14.16 % on yearly basis to Rs 3776.67 crore for the Q4FY13.

The shares of PNB are currently trading at price-to-book value of 0.9x, which looks attractive considering the stable asset quality of the bank. Moreover, the board of directors has also announced a dividend of Rs 27 per share, which makes for a dividend yield of 3.5%. Hence, we suggest that investors take exposure to the counter.