MOSL: PUNJAB NATIONAL BANK (Downgrade to Neutral): There’s pain all over

Punjab National Bank: There’s pain all over; downgrade to Neutral

(pnb IN, Mkt Cap USD3.7b, CMP INR86, TP INR85, 1% Downside, Downgrade to Neutral)

• PNB reported operating loss of INR4.5b due to tepid revenue lines and sharply higher operating expenses (on account of AS-15 provisions). NII declined 23% QoQ (-17% YoY), while other income fell ~49% QoQ. Provisions of INR203.5b (significantly higher) led to PBT loss of INR208b. PBT loss was offset by tax credit of INR73.8b, resulting in a loss of INR134.2b.
• Slippages spiked to INR309.9b (27.4% annualized) on account of one fraud account related to gems and jewellery (INR75.8b) and the RBI’s revised stressed asset framework (INR102.37b). The bank further reported a divergence of INR22.07b (GNPA). GNPL/NNPL ratios, thus, increased sharply to 18.4%/11.2%, with absolute GNPA/NNPA up 51%/43% QoQ.
• CAR ratio declined sharply to 9.2% (-238bp QoQ), with CET-1 ratio declining to 5.96% and overall Tier-1 ratio coming in at 7.13% (9.16% in 3QFY18).
• FY18 highlights: GNPA rose from INR553.7b (12.5%) in FY17 to INR866.2b (18.4%) in FY18, while NNPA increased from INR349.9b (9.1%) in FY17 to INR486.8b (11.2%) in FY18. In FY18, PNB, thus, reported a loss of INR122.8b, far exceeding the loss of INR39.7b that it reported in FY16, when the RBI initiated the AQR exercise.
• Other highlights: 1) PNB identified total liability of INR143.57b in respect to the gems and jewellery account, of which it has provided 50% in the quarter, while the rest (INR71.78b) is yet to be provided. 2) PNB raised INR50b via QIP and was allotted INR54.73b by the government as part of the recapitalization plan.