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Last Updated : Feb 05, 2020 01:08 PM IST | Source:

PNB posts loss with elevated slippages in Q3, what should investors do?

PNB's annualised credit cost inched up to 3.8 percent during the quarter, against 3 percent in the previous quarter.

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Punjab National Bank share price fell more than a percent intraday on February 5, as most brokerages remained bearish on the stock in the face of its weak asset quality and the merger overhang.

The stock has declined more than 17 percent in the last three months. It was quoting at Rs 56.55, down Rs 0.20, or 0.35 percent, on the BSE at 1232 hours.

"We cut FY21/FY22 earnings estimates by 35 percent each, factoring in lower growth/higher loan loss provisions (LLP)," said Emkay Global.


It which maintained “sell” rating with a target price of Rs 45 due to weak asset quality, poor return ratios, weak internal controls and merger overhang with United Bank and OBC.

Edelweiss Securities also maintained “reduce” rating on the stock. "Factoring (in) higher credit cost and weak core performance, we prune FY20/FY21 estimated book value 3 percent each, leading to revised price target of Rs 50 (earlier Rs 55)."

A weak earnings profile, structural operational issues and diluted franchise make PNB a structurally challenging investment proposition, it said.

"Furthermore, merger will be key monitorable and the transition process is likely to be challenging. We expect the merged entity to be one of the weakest large banks," it said.

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The public sector lender reported a loss of Rs 492.3 crore for Q3FY20 (against a profit of Rs 246.5 crore YoY), mainly due to higher LLP, including provisioning divergence for FY19 and the re-alignment of its provisioning policy on some common exposures with merging United Bank of India and OBC Bank.

Despite elevated slippages at Rs 7,398 crore (against Rs 8,119 crore QoQ), 6.8 percent of loans, gross non-performing assets (NPA) ratio improved 46bps QoQ to 16.3 percent, mainly due to Essar Steel recovery. Net NPA dropped 47bps QoQ to 7.18 percent in Q3.

PNB optimistically claimed that lumpy corporate stress formation is largely behind but SME/Agri stress to remain elevated over the next two quarters.

PNB carried 30 percent provision on DHFL/Jet, which it plans to accelerate given expected higher loss given default (LGD). It also has to make residual fraud provisions of Rs 1,580 crore.

"This, coupled with potential migration to new tax regime and thus DTA impact, could keep earnings in check," Emkay said.

Provisions and contingencies increased 41.5 percent sequentially to Rs 4,146 crore in quarter ended December 2019, but declined 57.5 percent YoY.

Net interest income of the bank in Q3 grew by 1.5 percent YoY to Rs 4,355.05 crore, with a loan degrowth of 2.05 percent and contraction of 28bps in the net interest margin YoY.

Other income (non-interest income) increased sharply by 32.2 percent YoY to Rs 2,404.8 crore and pre-provision operating profit grew by 21.4 percent YoY to Rs 3,762.9 crore in Q3FY20.

PNB's annualised credit cost inched up to 3.8 percent during the quarter against 3 percent in previous quarter.

"Credit cost should stay high as the bank will provide for the remaining fraud accounts. We, thus, revise our earnings estimates as we cut our loan growth assumptions and factor in the higher credit cost. We maintain neutral with an unchanged price target of Rs 65," said Motilal Oswal.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.


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First Published on Feb 5, 2020 01:08 pm
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