The first major takeaway from the Punjab National Bank (PNB) Q4 numbers is that the bank is struggling hard to address its bad loan situation. The gross non-performing assets (GNPAs) is now down at 14.21 percent for the quarter compared to 15.50 percent in the year on year period.
The net NPA also stands reduced at 5.78 percent as against 7.18 percent as on December, 2019. The provision coverage ratio (PCR), a critical efficiency parameter, improved to 77.79 percent from 74.50 percent. The high provisions, however, have caused another quarter of losses, an inevitable pain the lender couldn't have avoided.
But, PNB is not out of danger zone yet. The NPA (non-performing assets) levels remain too high and the Covid-19 outbreak and the subsequent nationwide lockdown could further worsen the asset quality issues. The bank, going by its comments post result, doesn't seem to be much worried about a potential bad loan shock ahead. It sounded confident.
The forward guidance given by PNB is that the bank expects loan recovery process to gather momentum beginning third quarter. Overall, the bank is expecting recoveries to the tune of Rs6,000 crore to Rs8,000 crore this fiscal year. The lockdown has impacted its recovery process in the fourth quarter. Similarly, on a year on year basis , the domestic advances have grown by jut 1.1 percent to 4.95 lakh crore. This means the loan book has remained almost at the same level.
This pace is unlikely to pick up pace in the next two quarters since Covid-19 has affected consumer confidence and demand. People have put their plans to buy new homes and vehicles on hold in the face of an uncertain economic future. The massive job losses and pay cuts have dented sentiments.
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In this context, PNB's investors will have to keep an eye on the unassessed risk in its advance portfolio—about a quarter of the loan book is under moratorium. As mentioned above, the bank is confident that there won’t be any shocks from this chunk of loans going ahead.
But, till August end, (when the moratorium deadline expires), it is not easy to get a sense on the repayment ability of borrowers in the moratorium portfolio. The management believes that most of these loans are in the low-risk category and negative surprises are unlikely. But, predicting the Covid-19 shock is, at best, a guess.
According to Emkay research, Rs 51,800 crore or 10 percent of loans are under the SMA/overdue category. SMA refers to special mention accounts where repayments are already overdue. SMA 2 loans, or loans overdue between 60 to 90 days, now stands reduced to Rs 9,600 crore, or 1.9 percent of loans from 4.1 percent in Q3FY20. The bank has spent considerable time in the Q4 in managing the merger process with Oriental Bank of Commerce and United Bank of India. This process may continue in the approaching quarter as well in some form.
Going ahead, the bank's growth hinges on two critical aspects — its ability to raise money at the right time and improvement in the economic conditions. The bank has indicated that it will hit capital markets this fiscal—possibly end of third quarter or fourth quarter after getting a sense of amalgamated balance sheets and Covid-19 shock on asset quality.
Growth shouldn't be the primary concern for PNB in the remaining period of this fiscal. Considering the economic slowdown, companies are likely to face severe pressure on cash flows this year, affecting their ability to repay lenders. PNB may witness its share of fresh woes, too.
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