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Punjab National Bank (PNB) reported a mixed set of numbers for 2QFY2016 with
subdued operating performance, while its asset quality improved marginally.
Loan growth remains modest; NIM improves qoq
During 2QFY2016, advances and deposits grew by 6.7% and 14.0% yoy,
respectively, with the CD ratio at 70.6%. Domestic advances growth was sluggish
at 6.3% yoy, while international advances saw a modest growth of 9.5% yoy. In
domestic advances, the retail loan book grew by 23.0% yoy, aided by 27.6% yoy
growth in housing segment. Industry loans growth was modest at 7.6% yoy as the
bank was cautious lending to the large industry segment.
CASA deposits grew by 13.4% yoy with Current deposits growing by 25.0% yoy.
The NIM improved by 7bp qoq to 2.97%, due to higher yields. Other income
(excl. treasury) was weak witnessing a decline of 12.9% yoy due to a decline seen
in both fee income and recoveries.
Asset quality improved for the second consecutive quarter as the Gross NPA ratio
decreased by 11bp qoq to 6.36%, while the Net NPA also drifted downwards by
6bp qoq to 3.99%. The bank reported the second quarter of consecutive
significant decline in slippages on a qoq basis to `2,613cr (annualized slippage
ratio stood at 2.8%) as compared to `3,382cr in 1QFY2016. Out of the total
slippages, fresh slippage for the quarter was to the tune of `2,388cr while fresh
restructuring during the quarter was lower at `216cr as against `676cr in 1QFY2016.
The outstanding restructured book stood at `38,261cr, 10.3% of the loan book.
Outlook and valuation: PNB has been witnessing improvement in asset quality
since the past 2 quarters after severe asset quality pain over the previous several
quarters. In our view, we expect asset quality pressure to ease from here on given
the bank’s seasoned loan book and conservative lending approach followed by
the bank as compared to its peers. At the current market price, the stock trades at 0.6x
FY2017E ABV. However, given the stress in certain sectors of the economy and with PNB
having a meaningful exposure to these stressed sectors, we would follow a cautious
stance in the near-term. Hence, we recommend a Neutral rating on the stock.

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