Punjab National Bank rises after credit ratings upgrade

Punjab National Bank (PNB) gained 1.26% to Rs 40.15 after CRISIL Ratings upgraded its rating on the Tier-I bonds (under Basel III) of the bank to 'CRISIL AA/Stable' from 'CRISIL AA-/Stable'.

CRISIL said that the upgrade in the rating of Tier I bonds (under Basel III) factors in improved position of PNB to make future coupon payments, supported by an adjustment of accumulated losses with share premium account, and the improved capital ratios. Pursuant to the adjustment, the eligible reserve to total assets ratio for the bank has improved.

CRISIL has also taken into consideration, Department of Financial Services Gazette notification dated 23 March 2020 referred to as Nationalised Banks (Management and Miscellaneous Provisions) Amendment Scheme, 2020, which specifies that share premium reserves can be utilised to set off any losses in future.

PNB has significant share premium reserves which can be utilised in the future, if required, thereby protecting from any depletion in eligible reserves. This supports the credit profile of Tier I (under Basel III) instruments.

However, any substantial depletion of the share premium account or any regulatory changes to appropriation of the share premium account pertaining to adjustment of accumulated losses are key monitorables.

Supported by Tier I equity raise of Rs 1800 crore via Qualified Institutional Placement during Q1 FY22 and higher accrual, PNB's capital ratios have improved, as reflected in Tier 1 and overall capital to risk-weighted adequacy ratio (CRAR) of 12.5% and 15.2%, respectively, as on 30 June 2021 as against 11.5% and 14.3%, respectively, as on 31 March 2021.

The outstanding ratings on the debt instruments of PNB continue to factor in the expectation of strong support from the majority owner, Government of India (GoI), established market position and the bank's healthy resource profile. The ratings also factor in the modest asset quality and profitability metrics.

In line with relief measures announced by the Reserve Bank of India (RBI) during the Covid-19 pandemic, PNB had provided a moratorium to its borrowers. Though collections declined during the initial months of moratorium, they moved up subsequently.

However, the second wave of the pandemic led to intermittent lockdowns and localised restrictions, thus impacting collections once again. Although the impact has been moderate during this phase, any adverse change in payment discipline of borrowers may lead to higher delinquencies.

The ability of the bank to manage collections and asset quality going forward this fiscal, is a key monitorable, the ratings agency said in a statement.

PNB, established in 1895 in Lahore, Pakistan, expanded its operations through mergers and acquisitions before being nationalised in 1969. On 4 March 2020, the Union Cabinet approved the amalgamation of PNB, UBI and OBC. The board of directors of the bank finalised the share exchange ratio on 5 March 2020, and the merger got effective from 1 April 2020. The Government of India owned 73.1% of the bank as on 30 June 2021.

For first quarter of fiscal 2022, PNB reported a net profit of Rs 1,023 crore on total income (net of interest expenses) of Rs 10,821 crore as against net profit of Rs 308 crore on total income (net of interest expenses) of Rs 10,436 crore, respectively, in corresponding period of previous year.

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