Punjab National Bank’s (PNB) operational performance was reasonably strong for Q3 FY21. Net interest income (NII) came at Rs 8312 cr, down 1% qoq and was above expectations. PAT came at Rs. 506 crore, down 18% qoq, below expectations. Due to PNB’s amalgamation (effective April 1, 2020) with erstwhile Oriental Bank of Commerce and United Bank of India, the quarterly/nine months results of the current financial year are not comparable with the corresponding year-ago period. Share price of Punjab National Bank closed at Rs 38 down Rs 2.1 or 5.2% on Monday.

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Punjab National Bank’s provisions were elevated, at Rs 5433 cr, up 31% yoy and 16% qoq, along with employee cost, which jumped by 67% yoy but down 10% qoq, which caused PAT to miss estimates.

Proforma gross NPA and proforma net NPA ratio at 14.71% and 5.65%, respectively, are not materially ahead of reported numbers. Punjab National bank holds aggregate provision of Rs 3041 cr as of Dec 2020 (includes Rs 446 cr for COVID-19 Regulatory Package Provision, Rs 75 cr for OTR done under Resolution Framework for Covid-19 related stress, and Rs 2520 cr), which is 11% of reported NNPAs.

Punjab National Bank’s Provision Coverage Ratio (PCR) as of Dec 31, 2020, works out to 85.16%. Restructured book (under Covid-19) stood at Rs 11998 cr or 1.8% of loans. The one-time MSME restructured book is at Rs 3071 cr vs Rs 2713 cr, up 13.2% qoq. Standard restructured book stood at Rs 2267 cr versus Rs 2339 cr, down 3.1% qoq. The total standard restructured book at 0.34% stands against 0.36% qoq.

Punjab National Bank’s reported pro-forma slippages of 2%, restructured loans of 2.5%, and has combined coverage of 60% on its entire stress pool. Hence, Sharekhan have revised their estimates, but Sharekhan believes asset-quality wise, the outlook still lacks clarity. Sharekhan maintained their Hold rating with a revised price target of Rs 42.

Punjab National Bank’s Key positives:

Reported asset quality improved with GNPA/NNPA improving to 12.99%/4.03% as against 13.43%/4.75% in Q2 FY21
However, there is low visibility on asset-quality outlook

Punjab National Bank’s Key negatives:

Business momentum was subdued with deposits growing by 1.2% qoq & advances growing 1.5% qoq.
Global NIM declined to 3.09% (down from 3.21% in Q2 FY21).

Punjab National Bank’s Key Risks:

An elongated or prolonged economic recovery or further stress due to the pandemic may result in a spike in NPAs and may affect profitability