PNB Q4 below estimates, asset quality a concern: Experts

Below is the transcript of Jignesh Shial, Vaibhav Agrawal and Nilesh Parikh ’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Latha: You go first. What have you made of them?

Agrawal: Clearly, the provision number is the big negative surprise there; it is almost 70 percent more than what we were expecting. They have provided at least to the right extent so the net NPAs have not gone up as much as expected, but we have to wait for the slippage number. Looking at these broad numbers it looks like the slippage for this quarter too would have been quite high, last quarter was more than Rs 5,000 crore, they would have done a similar or slightly higher run rate even in this quarter and that is almost 6 percent annualized slippage rate which is just too high to manage with this kind of a P&L and that is the problem with the bank right now.

Ekta: Your sense on the numbers, it is an NII decline of 5 percent and 62 percent decline on PNB it reminds me of what Bank of Baroda did last quarter in terms of the sharp worsening that we saw in the profit?

Parikh: Well, Bank of Baroda was slightly different given that they had a one time tax adjustment but PNB numbers in terms of asset quality; the trends haven’t changed in terms of deteriorating asset quality conditions but the good thing is they have taken the knock on the P&Ls so the coverage is actually being held at these 57-58 levels. You need to understand the breakup of the provisions, but largely its gone towards taking care of the NPA out there.

Latha: Any other comment itself? Surely the growth of the bank also will be stymied because they will have less reserves to provide for-they will be dependent on capital from the government, so growth also is not going to come in very easily. Already NII is a poor picture.

Parikh: I agree, but one thing the Net interest income (NII) could be a one time impact because of the interest income reversals which would have taken but having said that, PNB along with an SBI and Bank of Baroda has got capital from the government and the other state-owned banks so from a capital perspective they are still better of the lot, but I agree with you, it could constraint growth going forward but having said the growth hasn’t been very exciting over the last one to two years.

Latha: Any further thoughts on both asset quality as well as growth?

Agrawal: Actually like Nilesh mentioned, PNB is one of the few public sector (PSU) banks which is at least having a decent tier one capital adequacy. So, capital right now for them is not the main challenge. Growth, in fact, over the last two or three years they have been amongst the slowest. That actually indicates that their loan book is also very seasoned. So, we have seen a lot of non-performing loans (NPL) obviously. But at some point when the recovery starts, PNB should start showing decline also sooner than other banks because they have been very cautious over the last two, three years. It is just that the immediate near-term is really very challenging on the asset quality front. Otherwise, from a capital stand-point they are reasonably well-placed.

Latha: You heard it all. Profits have come in way below street expectations at Rs 300 odd crore against expectations of Rs 800 crore as well net interest income (NII) is lower by about five percent, gross non-performing loans (NPL) have risen by about 13-14 percent and now stand at six and a half percent, 6.55 percent of the total book. Your thoughts?

Shial: Definitely a bad set of numbers, much lower than what we were assuming. Although, the advanced growth of what number I am seeing it, I do not know whether it has been discussed here or not. Nine percent year-on-year (Y-o-Y) growth kind of numbers they have delivered. They are saying it is more to do with its dismissal on board side. Its operational performance has been bad, it is lower than expected and indicating that higher NPL has probably resulted into more interest reversal and that is obviously higher provisioning. It is a loss actually and it just a tight thread back that is actually bringing up the profits. So, bad set of numbers.

Sonia: While I agree with Latha’s point that PNB is an indication of what the economy is doing makes you raise eyebrows in terms of what the other banks could deliver but we have seen a trend for PNB. Last quarter was not enough of an alarm bell to maybe scale down expectations drastically for PNB and my question being, have these numbers shocked you or surprised you?

Shial: Last I would not have expected, to be very honest. If I say that I was expecting this kind of loss would be reported by PNB, that would be a little shocker because SBI followed by PNB and Bank of Baroda (BoB) are the three lead PSU Banks and if you are expecting that to report loss, that itself would indicate that the economy itself is pretty much gloomy, which personally, I was not expecting them to do. There seems to be something much beyond what street is expecting and it seems that people have been pretty devastated probably very bad than what even the management would have indicated. So, last conference call, they have been indicating some stress but not this kind of stress was anyhow indicated by any of them.