PNB stuns Street with its NPAs

Analysts question asset quality as slippages triple to Rs 4,200 cr q-o-q

If there is one thing that analysts dislike, it is nasty surprises. There are plenty of these in Punjab National Bank (PNB)’s March quarter numbers. Though PNB’s shares have risen 51 per cent over three months, analysts are concerned about asset quality. After reporting slippages of Rs 3,271 crore in the first quarter, the bank’s accretion of bad debt decelerated to Rs 1,505 crore, giving the impression its asset quality issues had stabilised. However, PNB stunned the Street with an unprecedented increase in stressed assets, both restructured and fresh slippages.

In the March quarter, fresh slippages stood at Rs 4,200 crore and restructured assets stood at Rs 2,900 crore, both higher than estimates. PNB’s bad debt accretion is not in line with that of other public sector banks. Vaibhav Agrawal of Angel Broking says: “Absolute gross NPAs increased by 13.8 per cent sequentially while absolute net NPAs increased 9.2 per cent. Both slippages and incremental restructuring were much higher than our estimates.”

The sharp rise in bad loans has also impacted profitability in a big way. Net profit fell 28.7 per cent to Rs 810 crore compared to the corresponding quarter in FY14. Net interest income (difference between the interest it earns from advances and that  paid on deposits) was Rs 200 crore lower than the estimated, on higher slippages and interest reversals. PNB has said it has reversed interest for some borrowers as it realigned interest costs for some small-and-medium enterprises. In the March quarter, its net interest income grew six per cent, year-on-year but declined 5.2 per cent sequentially.

According to Emkay Global, PNB’s provisioning stood at Rs 2,140 crore, which is 44 per cent higher than last year and 34 per cent higher than the December quarter. The brokerage says PNB would have provided Rs 450 crore on Winsome and another Rs 250 crore under mark-to-market provisions. The bank has given a grim forecast for the coming quarters, too.

Is PNB a good ‘buy’? After the third quarter results, the Street had believed the bank was getting its house in order but the latest numbers show there is more to the bank’s asset quality than meets the eye.