Punjab National Bank (NSE:PNB) (BSE:532461)

Punjab National Bank (PNB) reported a mixed set of numbers for 1QFY2016 with subdued operating performance, while its asset quality improved marginally. Loan growth remains modest; NIM improves qoq During 1QFY2016, advances and deposits grew by 9.6% and 16.4% yoy, respectively, with the CD ratio at 73.6%. Domestic advances grew at a sluggish pace at 6.7% yoy, while international advances grew at a healthy pace by 31.4% yoy. As a result, the share of international advances went up to 14.1% as against 11.8% in 1QFY2015. In domestic advances, the retail loan book grew by 25.3% yoy, aided by 26.6% yoy growth in housing. Industry loans grew by 9% yoy as the bank was cautious to lend to the large industry segment. CASA deposits grew by 10.9% yoy with Current deposits growing by 18% yoy. The Domestic CASA ratio declined by 92bp qoq to 38.9%, due to higher growth in term deposits. The NIM improved by 11bp qoq to 2.9%, due to lower cost of funds. Other income (excl. treasury) grew at 13.9% yoy with traction in recovery from written off accounts. Operating expense was down 4.9% due to change in discount rate and completion of second pension liability provision in FY2015. Asset quality improved marginally as the Gross NPA ratio decreased by 8bp to 6.47% after 5 consecutive quarters of uptick, while the Net NPA was flat on a sequential basis. The bank reported significant decline in slippages on a qoq basis to Rs3,382cr (annualized slippage ratio stood at 8.5%) as compared to Rs7,424cr in 4QFY2015. Out of the total slippages, fresh slippage for the quarter was to the tune of Rs2,802cr, while slippage from restructured book was Rs536cr. Fresh restructuring during the quarter was lower at Rs676cr spread across 22 accounts. The outstanding restructured book stood at Rs39,969cr, 10.5% of the loan book. The Management has identified assets worth Rs2,500-3,000cr to be sold to ARCs in the current fiscal as compared to Rs75cr in FY2015. PNB has approved 5/25 scheme for 6 accounts of Rs2,600cr and has a pipeline of Rs10,000-11,000cr of 20-25 accounts. Outlook and valuation: PNB has witnessed marginal improvement in asset quality after severe asset quality pain over the several quarters. The bank’s Management, now expects asset quality pressure to ease from here on. However, we remain watchful on incremental asset quality pressures for the bank, in the near term. At the current market price, the stock trades at 0.7x FY2017E ABV. We recommend a Neutral rating on the stock.

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