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| PNB: Next level of rationalisation |
| Akash Joshi / Mumbai Jun 25, 2010, 00:54 IST |
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 By buying stakes in subsidiaries, the bank has demonstrated its intention to streamline its fee-income business.
Punjab National Bank (PNB), one of the closely-watched banks in the Indian banking sector, is in for another round of rationalisation. After rationalising its costs in the past three years and bringing the cost-to-income ratio down to 42 per cent levels in FY10 from 50 per cent-plus in FY08, the bank will now restructure its subsidiaries.
PNB will buy back key stakes in the insurance broking company from Principal Financial Group and Berger Paints. It will also buy stakes in the life insurance company. At the same time, it will sell its 30 per cent stake in the distribution company joint venture to Principal. This will help it get a better share of non-interest income, which accounts for around 0.9 per cent of its average assets, and can be increased further.
The bank has maintained strong traction on the net interest margin (NIM) front. It recorded NIMs of around four per cent for the March quarter, the best amongst peers. This was due to repricing of deposits and stable yield on advances, reckon analysts. Moreover, a current account and savings account (Casa) ratio of around 40 per cent, which allows access to low-cost funds, is one of the best amongst peers.
However, there are concerns regarding asset quality. The bank’s restructured book stands at 6.5 per cent of outstanding advances. The share of agricultural and small- and medium-enterprise lending may create some problems in the short term. However, the provision coverage ratio ( that includes technical write-offs) of 81 per cent in FY10 provides some cushion in case of more-than-expected slippages.
PNB has also recognised Rs 360-crore agricultural loans, which were related to debt waiver and were unpaid, as non-performing in the March quarter. The bank has recorded a 22 per cent return-on-equity against the industry norm of 14-18 per cent. Hence, the ability to maintain strong non-interest income, apart from expanding its core business, is seen as the key. But, the fee-income zone will have more competition than expected.
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