Punjab National Bank’s June quarter results continued to highlight the bank’s asset quality pressure. While bad loans did not shoot up as sharply as in the previous two quarters, the high level of gross non-performing assets (GNPA), now at 13.7 per cent of loans, is a cause for concern.
The bank’s stressed assets — bad loans and restructured loans — stood at 18.3 per cent as of June 2016. After reporting a loss of ₹5,367 crore in the March quarter, PNB’s earnings have crawled back into the black. However, a net profit of ₹306 crore in the June quarter, amounting to an abysmal 0.18 per cent return on asset, does not lend comfort.
The bank’s bad loans as a percentage of total loans have been steadily moving up, and are currently among the highest in the system. A handful of banks such as UCO Bank, IOB, BOI and United Bank have GNPAs close to or over the 13 per cent mark.
The bank’s restructured loans as of June stood at around 4.6 per cent of loans. This is a sharp fall from the 10 per cent levels seen in the same quarter last year. But this is only because much of the slippages into bad loans in the last two quarters were from restructured assets. Slippages from these accounts continue to pose a risk in the coming quarters.
To its credit though, the management has been focussing on bad loan recovery which has yielded results to some extent. Cash recovery and upgradation stood at ₹6,006 crore compared with ₹2,328 crore in the same quarter last year.
PNB’s core performance has been weak in the last couple of quarters. The bank’s core net interest income fell 9.8 per cent during the June quarter, compared to the same quarter last year. However, this was better than the 27 per cent decline witnessed in the March quarter.
Cost of deposits has fallen to 5.46 per cent in the June quarter from 5.9 per cent in the same quarter last year and 5.8 per cent in the March quarter. The bank has been trimming deposit rates across tenures by 20-25 basis points in the last one quarter or so.
Over the longer term, the bank has been reducing its high-cost bulk deposits to bring down its cost of funds. The share of such deposits is down to just 0.12 per cent, from 8 per cent levels three years ago. However, muted loan growth has impacted yields on advances and hence, margins over the last two-three years.
The net interest margin is down to 2.8 per cent from 3.5 per cent levels three years ago. In the June quarter, domestic advances grew 6 per cent year-on-year.
Focus on small loansOver the last four to five quarters, in view of the growing risk in large accounts, the bank has been de-risking its loan portfolio, focusing instead on small-ticket businesses, such as retail, MSME and agriculture. The share of small-ticket advances has gone up to 58.9 per cent in June 2016from 56 per cent in June 2015. The share of credit to large industries has come down to 27 per cent from 31 per cent last year.
Further efforts to de-leverage large accounts and consistency in recovery and up-gradation of bad loans will determine the earnings trajectory of the bank in the next one year.