Public sector bank Punjab National Bank (PNB) missed street expectations on Tuesday with the third quarter net profit rising 2.5 percent year-on-year to Rs 774.6 crore.
While it was on expected lines, the bank’s surge in non-performing assets (NPAs) are sticking out like sore thumbs, say analysts Vaibhav Agrawal of Angel Broking and Rajiv Mehta of IIFL.
The bank saw a substantial rise in gross NPAs from 5.97 per cent from 5.65 per cent in previous quarter while net NPAs increased to 3.82 per cent from 3.26 per cent, quarter-on-quarter.
Below is the verbatim transcript of Rajiv Mehta and Vaibhav Agrawal’s interview with Ekta Batra on CNBC-TV18.
Q: Disappointment on the numbers but it was expected?
Mehta: Of course when we approached the quarter such kinds of numbers were not expected. However, given the fact that we have seen a lot of PSU banks posting disappointing numbers and specially on the asset quality the last 10 days, we are seeing a similar trend over here.
More importantly net NPAs have moved up quite a bit and the provision coverage is declining. So, clearly if they would have provided or maintained the net NPA ratios their bottomline would have been more depressed. So, all in all the performance represents what the other banks have done which is a slow balance sheet growth and more deterioration in asset quality.
Q: Your first take on Punjab National Bank (PNB) and the asset quality, what do you expect to hear from the management?
Agrawal: The numbers as far as the operating income in fact are just about a tad lower than our estimates, about one and a half percent lower but clearly again it is the asset quality which has disappointed quite substantially and the increase in that non-performing asset(NPA)is way more than what we were expecting but of course there was some inkling of this looking at the numbers of the other PSU banks as well. Clearly that broader trend is getting reiterated again that there is significant stress which banks are actually recognizing in this quarter and likely in the next quarter as well.
Q: What would you recommend your clients to do with the stock now?Agrawal: We would certainly be reviewing our estimates for the bank and after that we would come out with the target price. Our broader view does sort of focus on the eventual revival in FY16 based on which we have been positive on the banking sector but probably there would be peaking on the target price and estimates.
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