PNB posts net loss of Rs 4750 cr in Q4 on higher provisioning for bad loans

The bank's gross non-performing assets (NPA) declined to 15.50% by March 2019, compared to 18.38% by end of December 2018

Punjab National Bank (PNB) on Tuesday posted a net loss of Rs 4,750 crore in the fourth quarter of 2018-19, signalling that the bank hasn’t scripted a turnaround after it was hit by a Rs 14,356-crore loan fraud last year.

The loss was on account of higher provisioning for bad loans during the January-March period. This includes provisioning towards grounded Jet Airways, which hasn’t been classified as a non-performing asset (NPA) yet, crisis-hit Infrastructure Leasing & Financial Services (IL&FS), and around an ageing provision towards two big accounts — Essar Steel and Bhushan Power and Steel — in the bankruptcy court. Ageing provisions were needed as the accounts remained unresolved till March 31.

The bank, however, recorded an operating profit of Rs 2,861 crore in the fourth quarter (Q4) compared to an operating loss of Rs 447 crore in Q4 of the financial year 2017-18 (FY18). The stock of PNB fell by 3.5 per cent to Rs 86.20 on Tuesday.

“We have shown good performance on almost all parameters — credit and deposit growth, net interest income and risk-weighted density. So, the bank has strong fundamentals but some issues didn’t materialise for us this quarter,” PNB Managing Director and Chief Executive Officer Sunil Mehta said at a press conference.

He pointed to the bank’s expectations for resolution of Bhushan Power and Steel, and Essar Steel case which is still going through the litigation process. Further, PNB could not sell its stake in PNB Housing Finance (PNBHF) because of regulatory hurdles. The bank, which holds over 32 per cent stake in PNBHF, had planned to sell a part of its stake to global private equity firms General Atlantic and Varde Partners. PNB plans to push through the stake sale this financial year.

The bank has around Rs 900 crore as exposure to Jet Airways and Rs 1,800 crore towards IL&FS, and has made partial provisioning towards these loan accounts.

The Delhi-based public sector bank had swung into profit — with a net profit of Rs 246 crore — for the first time in the third quarter after it reported the Nirav Modi-Mehul Choksi fraud in January 2018. PNB had reported a net loss of Rs 13,417 crore in Q4FY18 because of the fraud.

For the entire FY19, PNB’s net loss stood at Rs 9,975 crore compared to a loss of Rs 12,283 crore in the previous year. The bank had to do a full provisioning towards losses incurred because of the fraud in the first three quarters of the financial year.

Mehta pointed out that on the upside, the bank’s provision coverage ratio (PCR) rose to 74.5 per cent at the end of March 2019, compared to 68.9 per cent in December 2018, which is considered healthy for stakeholders, including depositors and investors. The PCR refers to the proportion of bad assets that has been accounted for in the balance sheet.

However, Mehta admitted that the bank’s capital adequacy ratio, which stood at 9.73 per cent by the end of March, isn’t at a “comfortable level” but will improve once recovery on account of pending National Company Law Tribunal cases happens. Capital adequacy ratio is considered to be one of the key indicators of a banks’ health and it ensures that banks do not lend all the money they receive as deposits and keep a buffer to meet future risks.

The bank expects a recovery of Rs 5,000 crore to Rs 6,000 crore and a write-back of around Rs 4,000 crore from Bhushan Power and Steel, and Essar Steel.

Asked about the government’s reported plan to merge PNB with other public sector banks, Mehta said, “Right now we have not thought of it and we have not received any proposal. When it comes, we will think of it.”

PNB’s gross NPA declined to 15.5 per cent by March 2019 from 18.38 per cent at the end of March 2018 and its net NPA stood at 11.24 per cent.

The bank’s fresh slippage, the amount of loan which turned from good to bad, stood at Rs 16,616 crore in FY19, compared to Rs 40,672 crore in FY18. On the other hand, the recovery of bad loans in FY19 stood at Rs 20,000 crore, which was less than Rs 10,000 crore last year.

The share of stressed assets stood at 16.01 per cent in Q4FY19, down from 16.84 per cent in the previous quarter.