Given that the banking sector is a proxy for India’s economic growth, the fourth quarter performance of India’s second-largest PSU lender, Punjab National Bank, becomes important. The performance has been marred by across-the-board deterioration in asset quality. Fresh slippages grew 4.3 per cent to Rs 2,800 crore.
Analysts say this is a substantial increase from the two per cent growth witnessed in the first nine months of FY12. The bank’s net restructured book stands at 8.5 per cent of loans. Its gross non-performing loans (NPL), combined with the restructured assets, now stand at 11.4 per cent of total loans, claim analysts.
This deterioration in asset quality has affected operational performance too, even though loan growth for the year has been 22 per cent. Sequentially, the bank has grown its loan book by 12 per cent, which is much ahead of the system. However, HSBC Global Research says: “The 12 per cent quarter-on-quarter growth in loans was meaningless as margins crashed 38 basis points QoQ, due to interest reversal from NPL recognition, rising funding cost and a surprising decline in yields on loans.” Also, most of the quarter’s loan growth was driven by the overseas book and other riskier segments like agriculture and small and medium enterprises.
Another disappointment has been the compression in margin due to elevated cost of deposits. Net interest income has dropped six per cent sequentially, even though advances have grown 12 per cent. Deposits have grown by a much slower six per cent q-o-q. According to Edelweiss, “Yields on advances saw 57 basis points compression to 11.4 per cent, partially due to Rs 125 crore of interest income reversal (impacting net interest margin by 13 basis points). This, coupled with marginally higher cost of deposits, led to margin compression.” The quarter has seen net interest margin (NIM) decline by 38 basis points to 3.5 per cent.
Earlier in the financial year, the bank was able to sustain higher margins as interest rates were high. But with rates coming down and cost of deposits staying high, NIM will come under pressure in FY13 and FY14. Analysts say what can impact the performance is improved recovery and upgradation of bad loans. Emkay Global is factoring in slippages of two per cent over FY13 and FY14.