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Punjab National Bank (Q3 FY12)

India Infoline News Service | Mumbai |

Strong loan growth driven by MSME, Agri and Retail segments

CMP Rs940, Target Rs995, Upside 5.7%

  • Strong loan growth driven by MSME, Agri and Retail segments
  • NIM performance in-line with expectations; margin compression expected going ahead
  • Yoy core fee income traction strong; C/I ratio improves significantly
  • Asset quality continues to deteriorate; RoA declines to 1.1%
  • Further valuation re-rating unlikely; retain Market Performer
Result table
(Rs m)Q3 FY12Q2 FY12% qoqQ3 FY11% yoy
Total Interest Income94,81089,5205.971,19133.2
Interest expended(59,444)(54,994)8.1(39,158)51.8
Net Interest Income35,36634,5262.432,03310.4
Other income9,5418,8897.38,57211.3
Total Income44,90743,4143.440,60510.6
Operating expenses(18,143)(18,137)0.0(17,106)6.1
Reported PAT11,50012,050(4.6)10,8985.5

Key  RatiosQ3 FY12Q2 FY12chg qoqQ3 FY11chg yoy
NIM (%)3.94.0(0.1)4.1(0.3)
Yield on advances (%)
Yield on Funds (%)
Cost of Deposits (%)
Cost of Funds (%)
CASA (%)35.336.3(1.0)39.1(3.7)
C/D (x)0.750.730.020.77(0.02)
Non-int. income (%)
Cost to Income (%)40.441.8(1.4)42.1(1.7)
RoE (%)19.621.6(2.0)22.4(2.8)
RoA (%)1.11.2(0.1)1.3(0.2)
CAR (%)11.512.2(0.8)11.9(0.4)
Gross NPA (%)
Net NPA (%)
Source: Company, India Infoline Research

Strong loan growth driven by MSME, Agri and Retail segments

Against our expectation of 5.5% qoq growth, PNBs loan book grew higher by 6.8% qoq. On yoy basis, growth momentum improved to 20% yoy, materially higher than the system. During the quarter, the bank witnessed strong growth in MSME (8% qoq), Agri (9% qoq) and Retail (5% qoq) segments. The corporate book, which grew at robust pace in previous quarters, contracted by 3% qoq. We expect the bank to achieve 17.5% loan growth in the current fiscal. Deposits growth was behind advances at 4% qoq thereby improving the C/D ratio. The growth was mainly led by term deposits especially the retail TDs (6% qoq and 31% yoy). The share of bulk TDs was stable at near 24%. CASA contribution decline by 100bps qoq (similar contraction in Q2 FY12) due to high TD rate differential.

NIM performance in-line with expectations; margin compression expected    

PNBs NIM declined marginally on sequential basis to 3.9%. The contraction was mainly driven by material increase in cost of deposits (20bps qoq) which in turn was caused by CASA decline and higher retail and bulk TD rates during the quarter. Further, the improvement in loan yield was lower than expected likely due to higher slippages reported by the bank. Management guidance on NIM continues to be conservative at near 3.5% implying that margin could further correct in the near term.    

Yoy core fee income traction strong; C/I ratio improves significantly

Core fee income growth was reasonably strong at 19% on yoy basis aided by brisk traction in processing fees (17% qoq), LC/LG income (19% qoq) and Bills & Remittance (44% qoq). Trading profit (Rs870mn) and recovery in written-off accounts (Rs920mn) were higher on sequential basis. Opex was flat on qoq basis and represented a marginal annual growth of 6%. Driven by higher non-interest income and flat opex, the C/I ratio improved materially by 140bps qoq to 40.4%.

Asset quality continues to deteriorate; RoA decline to 1.1%

PNB reported elevated slippages at 2.6% during Q3 FY12 pushing up absolute GNPL 25% qoq. GNPL ratio increased to 2.4%, above the banks guidance. As per the bank, bulk of Rs17bn slippage constituted an aviation account. Restructuring during the quarter stood at Rs19bn (Rs41bn in Q2 FY12) primarily contributed by GTL (~Rs10bn). The outstanding restructured book stood at Rs169bn, 6.5% of advances. Q4 FY12 is also likely to see significant restructuring with CDR pipeline hefty and Air India and Rajasthan SEB exposures under restructuring negotiations. In response to substantial slippages and continued restructuring, the bank raised LLP to Rs5.8bn (Rs3.2bn in Q2 FY12). Though the credit cost was high at 0.9%, PCR declined sharply to 70% from 75% in the previous quarter and resultantly NNPL ratio jumped to 1.1%. Notwithstanding the improvement in C/I ratio, RoA deteriorated to 1.1% (1.2% in Q2 FY12) on account of higher provisioning. Including 9m plough backs, CAR and Tier-1 ratio stood at healthy 12.8% and 9.2% respectively.

Further valuation re-rating unlikely; Retain Market Performer

Overall, PNBs results disappointed with PAT coming in 12% below our estimate. Relatively weaker asset quality continues to be a key drag on the banks performance. Substantial restructuring and higher exposure to troubled sectors further clouds the earnings outlook. Elevated provisioning is expected to continue weighing on RoA. Valuation is unlikely to re-rate significantly from hereon; retain Market Performer rating with price target of Rs995.

Financial summary
Y/e 31 Mar (Rs m)FY11FY12E
BSE 977.85 27.45(2.89%)
NSE 977.30 24.75(2.60%)

***Note: This is a BSE Chart


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