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Ever since the RBI’s asset-quality review in fiscal 2016 when PSBs reported steep losses on account of sharp spike in bad loan provisioning, the market has been trying to call the bottom of the NPA cycle. But the RBI’s February diktat on stressed assets this year led to banks reporting huge slippages once again.
The sheer size of NPAs reported in the March quarter appeared to imply that the worst was finally behind. Unfortunately, PNB’s September quarter results suggest otherwise.
The public sector bank reported a loss of ₹4,532 crore in the September quarter on the back of huge NPA provisions of ₹7,733 crore, painting a very dismal picture for the bank.
The fortunes of Punjab National Bank, which was counted as among the stronger banks last year (non-PCA), have gone from bad to worse in recent quarters.
Despite the Centre’s tidy capital infusion of ₹5,473 crore in FY18, the bank’s Tier I capital had stood just above the mandated 7 per cent requirement in the June quarter, owing to the sharp rise in provisioning in the March quarter.
This fiscal, after the Centre infused ₹2,816 crore into the bank in July, it once again pumped in ₹5,431 crore in the latest September quarter. Despite this, the bank’s Tier I capital is at a not-so-comforting 7.7 per cent at the end of the September quarter.
Sombre picture
For PNB, a large stressed book and weak balance sheet had, in any case, been a key overhang over the past two to three years. The break-out of the massive Nirav Modi scam and the RBI’s February circular on stressed assets only made matters worse.
The bank’s NPA provisioning ballooned to ₹16,200 crore in the March quarter, owing to huge slippages as a fallout of the RBI’s diktat. In the June quarter, while provisioning fell to ₹4,982 crore, it had been a worrisome figure. In the latest September quarter, provisioning skyrocketing to ₹7,733 crore is no doubt alarming. Importantly, the bank’s gross NPAs have fallen marginally (in absolute terms) from the June quarter, mainly due to write-offs rather than recovery. From ₹2,648 crore in the June quarter, write-offs moved up to ₹3,543 crore in the September quarter, while recoveries halved to ₹2,321 crore. Additions to bad loans remain high at ₹5,644 crore in the September quarter.
PNB’s gross non-performing assets ratio is still a steep 17.16 per cent of loans. With a huge bad loan book of about ₹81,000 crore, provisioning will continue to remain elevated, even if slippages moderate hereon.
In respect of the ₹14,356-crore Nirav Modi scam, the bank has made about ₹12,300 crore of provisioning so far. The balance will kick in during the next quarter.
PNB’s core performance also has been nothing to write home about. The bank’s core net interest income fell by 1 per cent Y-o-Y in the latest September quarter, despite a 14 per cent growth in domestic loans.
Even if core performance improves hereon, elevated provisioning can continue to weigh on the bank’s earnings in the coming quarters.
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