Punjab National Bank: Steady performance

PNB has reported impressive numbers in the March 2009 quarter

Punjab National Bank’s (PNB’s) March 2009 quarter results were ahead of market expectations on quite a few counts. PNB reported a robust 30 per cent y-o-y growth in loans driven by the SME and agri sectors, which helped it report a higher-than-expected 26 per cent rise in net interest income.

The bank’s other income, too, was ahead of estimates, up nearly 60 per cent to Rs 856 crore, due to a 238 per cent spurt in treasury income (trading profits). Income from core fees continues to grow at a healthy pace of 28 per cent. But as the bank made provisions of Rs 225 crore for wage hikes, operating profit growth was restricted to 30 per cent.

Even in terms of asset quality, the bank scored well. Its net non-performing loans, or bad loans, stood at just 0.2 per cent of total loans in March 2009, which is among the lowest in the industry. Also, the bank’s restructured loans, mainly to companies in sectors such as real estate, sugar and textiles, stood at 2.6 per cent of the total loans, an acceptable level.

PNB has had a high share of low-cost current and savings account (CASA) deposits to total deposits historically, and though it has fallen from 43 per cent to 39 per cent on a y-o-y basis, its CASA remains among the highest in the industry. Its net interest margin dipped 10 basis points y-o-y and 30 basis points q-o-q to 3.6 per cent, as lending rates have come down faster than deposit rates since the March 2008 quarter.

For 2009-10, analysts expect loan and fee-income growth to be a healthy 20 per cent and margins to remain stable. PNB’s asset quality is also expected to remain comfortable, considering that the worst may be behind us. At Rs 659, the stock trades at 1.3 times its estimated 2009-10 price-to-book value, and leaves some room for an upside.

Associated with Vishal Chhabaria and Jitendra Kumar Gupta