More pain for PNB with loan slippage risks

Lender could raise Rs 6K cr via Basel-III bonds

Punjab National Bank has more pain in store this financial year. After posting a loss of Rs 3,974 crore for FY16, the Delhi-based public sector lender has to brace for more pain as risks of slippages from a restructured loan pool remain high, according to analysts.

It had to absorb a huge burden of provisions for non-performing loans in 2015-16 after Reserve Bank of India (RBI) conducted Asset Quality Review (AQR) as step to clean up balance sheets. Despite slippage risks, the provision bill for 2016-17 was not expected to be order seen in FY16. In 2014-15, the PNB had posted a net profit of Rs 3,061.58 crore.

The foreign brokerage Nomura securities in its report said the loan in Special Mention Account (SMA2) category - those with interests or principal remaining due for 61-90- days - was Rs 11,000 crore. Plus standard restructured loans, excluding those to state electricity boards, stood at Rs 18,000 crore. This indicates that there is some more pain to come.

"The PSU banks' results clearly highlight the asset quality and related profit and loss risk for all corporate banks, including ICICI Bank and Axis Bank," Nomura said.

Domestic brokerage ICICI Securities said with asset quality headwinds accentuating in Q4FY16, PNB's business performance in FY17 is estimated to remain muted as a larger part of the management bandwidth is expected to be directed towards improving recoveries.

With a tepid demand for credit, the interest income flow may remain subdued in 2016-17. The recovery in credit growth is expected only in the second half of FY17. The Year on-year growth in credit till end of April 2016 was 9.2 per cent with system's loan book of Rs 72, 60,620 crore (Rs 72.60 lakh crore), according to RBI data.

Plus, there is also risk of having to reverse the part of interest income of accounts that may slip into non-performing asset category. Its net interest income, which is interest earnings minus interest expenses, fell by 27 per cent to Rs 2,768 crore in January-March 2016 from Rs 3,792 crore in Q4 of FY15.

Meanwhile, PNB informed BSE that its board has given nod to raise upto Rs 6,000 crore as capital through Basel-III complaint bonds. It could raise up to Rs 3,000 crore through Perpetual Additional Tier-I Capital bonds and similar amount by issuing Tier- II bonds, subject to availability of headroom in one or more tranches.