MOSL: PUNJAB NATIONAL BANK (Buy)-Weak operating performance-High write-offs and recoveries negate impact of relapse from OSRL

​Punjab National Bank: Weak operating performance; High write-offs and recoveries negate impact of relapse from OSRL

(PNB IN, Mkt Cap USD4.7b, CMP INR155, TP INR184, 19% Upside, Buy)

• PNB reported 90% beat on operating profit, despite 8% miss on NII. One-off employee expense-related provisions write-back (INR20.3b) and a strong contribution from non-core income (32% of PPoP) led to the strong beat.
  
• QoQ improvement in PCR by 380bp QoQ (~40%) and higher write-offs (INR26.3b) led to a decline in NNPA ratio to 7.8% from 9.1% a quarter ago.
  
• Relapse from OSRL and higher slippages from Agri portfolio (due to loan waiver in UP) led to NIM contraction of 13bp QoQ to 2.2%. Total slippages came in at INR69b (for the quarter, 6.7% annualized slippage ratio), of which slippages from restructured book were INR30b. OSRL declined to 2.8% (INR119b) of loans v/s 4.5% (INR172b) a quarter ago.
  
• NIM improved 40bp YoY as the base quarter was impacted by RBI AQR-related significant NPA recognition. Loan growth of 9%/2% QoQ/YoY was led by healthy growth in retail (8%/14% QoQ/YoY). Within retail, housing and education loans showed strongest QoQ/YoY growth of 7%/18% and 8%/15%, respectively. Within industry book, chemicals book registered 54%/34% QoQ/YoY growth.