Like many public-sector banks (PSBs) that have announced their March 2018 (Q4) results so far, Punjab National Bank (PNB) too is expected to report losses but of a higher magnitude. Besides higher slippages (loans turning bad) due to the Reserve Bank of India’s (RBI) new non-performing assets (NPAs or bad loans) rules and mark-to-market (MTM) provisioning for depreciation in value of government bonds due to higher yields, provisioning for the Rs 135 billion fraud reported in February is expected to have led to the poor performance in Q4.
Though the bank is expected to have spread the fraud-related provisioning over the four quarters, it is expected to report Rs 26-27 billion of losses in Q4. “Fraud‐related provisions though are likely to be spread over four quarters, we factor in Rs 60 bn (provisioning) which affects overall operating performance,” analysts at Prabhudas Lilladher said in a Q4 preview report. With RBI’s permission, banks are allowed to spread fraud-related provisions over four quarters instead of taking a one-time hit.
Not surprising then, asset quality of the bank is seen worsening in Q4 with mammoth slippages. Gross NPAs of the bank are at 14-14.5 per cent of its gross advances as of March 2018 against 12.1 per cent in the December 2017 quarter (Q3).
Moreover, higher NPAs are also expected to have impacted its topline due to interest reversal. However, an 11-15 per cent growth in advances would push its net interest income or a difference between interest earned and expended to some extent (around six per cent year-on-year) and net interest margin (NII as a percentage of interest-earning assets like loans) is seen at around two per cent, 20 basis points down year-on-year.
Only, if the bank has utilized the RBI’s relief measure in terms of spreading MTM provisioning since Q3 across four quarters, the impact would be lower.