Worst not over for PNB; may face softer quarters ahead: Experts

The fourth quarter results of the Punjab National Bank (PNB), which came out on Wednesday, were worse than the low expectations set for it, said Mayuresh Joshi, Angel Broking. The results, he said, indicate that the worst is not over for the bank and that he expects the stock to have some soft quarters ahead. Talking about the banking sector, he said the asset quality for banks is not going to improve very soon. Hemindra Hazari, hemindrahazari.com, echoed Joshi's concerns. "This is not the end but the beginning of the end for bad asset quality for banks," he said. He said most of the bad debts being identified are from large corporates. But he feels the bad debts will slowly start coming from the small and medium-sized enterprises (SME). And, due to poor rainfall, bad debts may also come from the agriculture sector.Pankaj Sharma, Equirus Securities, said he expects the numbers to get worse over the coming months. He doesn't feel that there is going to be a revival very soon.Below is the verbatim transcript of the interview. Ekta: What have you thought of the Punjab National bank (PNB) numbers and the stock seems to have factored the worst in now? Hazari: That is what it appears to be although the market as I believe was expecting a net loss of around Rs 53 crore. They have far exceeded that loss. Again, what I have been saying this for some time now, for the last two years, that you should expect a tsunami of bad debts to hit the banking sector and what you are seeing in terms of increase in bad debts here and the kind of losses that banks are reporting, I think is the beginning of this tsunami. I would also like to add that this is not the end of bad asset quality in the industry but the beginning of the end. There is going to be lot more worst numbers to come because a lot of these assets which are being identified are mainly pertained to the corporate sector and to large corporates. They are going to see a similar contamination happening with the SME sector and because of the poor rainfalls you are going to see the contamination spread to your rural and your agricultural portfolio and soon it will also then go to the retail portfolio which is mainly an urban phenomena and which banks have been pushing, retail credit that is also going to start getting impacted in my view. Ekta: What have you made of the PNB numbers with a gross NPA of over Rs 55,000 crore now. How much worst do you think it could get for PNB? Sharma: What has happened compared to third quarter, definitely this number is on the higher side. So, I believe that we might see couple of more quarters where this number could get even worse. So, most of the times when you look at Q3 comparison and Q4 comparison in PNB’s case -- we were looking at NPA numbers for Q4 would be a bit less and probably there would be some relief there but Q4 number is an absolute shocker which is much higher than what we could have expected. So, I think that maybe couple of more quarters before we see some more clarity on this but the numbers are really very bad and I don’t think it will improve very soon.Nigel: You have seen the numbers, it is a miss on all parameters and people are expecting a tsunami, etc but it is worse than that I believe. Where does the stock go from here? Joshi: The stock will remain under pressure because the numbers were far worse than what even we had expected. So, I think a lot of analysts on the street had pegged in either similar numbers to come through as guided in Q3 and the management had guided to a weak Q4 but I think it is much worse than what a lot of analysts on the street were expecting both in terms of how the absolute numbers on the gross NPAs have panned out, increase in provisioning, to a large extent one needs to understand whether they have created any buffer provisions in this figure of provisioning that they have actually given through. However, the asset quality stress is continuing. I think the stress in terms of how the advances are growing, the asset quality review (AQR) stress is still very evident. One also needs to understand what is come through in terms of 5:25 and SDR as well, what happens with SMA – II book and that will definitely have a bearing in terms of keeping credit costs elevated. So, all this needs to be understood but the stock has probably delivered much worse than what we were expecting and I expect the stock to remain under pressure.