The worsening asset quality, high levels of restructured loans and elevated provisioning costs — aspects that have troubled Punjab National Bank in the last one year — continue to remain concerns.

In the recent September quarter, the gross NPAs remained elevated at 5.65 per cent of loans, up from 5.4 per cent in the June 2014 quarter. The bank’s pile of restructured loans, at 10 per cent of total loans is one of the highest among the public sector banks. Provisions for bad loans shot up 63 per cent over last year.

Rescued by other income

While PNB’s net profit grew 13.8 per cent in the September quarter, it was mainly led by a 73 per cent rise in other income. The bank’s core net interest income grew just 3 per cent over last year. On the loan front, PNB’s loan book grew by 13.7 per cent, but the yield on advances declined by 50 basis points over last year, thus impacting the bank’s net interest margin. The loan growth was led by agri loans which grew 23 per cent and the MSME segment, which expanded 24 per cent. Further, while the high-yielding retail loan book grew 19.7 per cent, it constitutes only 13 per cent of total loans, and has not helped margins. The large corporate book, which accounts for over a third of the bank’s loan book, declined 3 per cent. On the deposits front, the bank has been reducing its high-cost bulk deposits. The share of such deposits is just 6 per cent in the September quarter. However, the lower cost of funds has been offset by a lower yield on loans.

While PNB is likely to grow its loan book by 14-15 per cent in 2014-15, the higher provisioning requirement for stressed loans will continue to drag its profitability. The return on assets and return on equity have dipped to as low as 0.4 per cent and 6.3 per cent respectively, in the September quarter.

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