PNB Reports an Over Three-Fold Jump in Net Profit as Provisions Fall

State-owned Punjab National Bank reported over three-fold jump in its standalone net profit to Rs 10.2 bn, up 231% for the first quarter ended June 2021.

This was mainly due to a fall in operating expenses and a good recovery. The lender had posted a net profit of Rs 3.1 bn in the year ago period.

Sequentially, net profit of the Delhi-based bank increased 74% from Rs 5.9 bn reported in March 2021 quarter.

On a consolidated basis, PNB reported a net profit of Rs 10.8 bn in the quarter ended June 2021 against Rs 4.8 bn a year ago. The consolidated financial result of the bank comprises five subsidiaries and 15 associates.

Bank's June quarter performance on operational level

The bank's net interest income (NII) increased 6.5% year on year (YoY) to Rs 72.3 bn during the quarter on a standalone basis.

NII is difference between interest earned by a bank through lending and interest paid to depositors.

Global net interest margin for the bank improved to 2.7% during the quarter, compared to 2.5% in the same quarter last year.

However, the total income during quarter one declined to Rs 225.2 bn from Rs 242.9 bn in the same quarter last year.

The operating profit of the bank increased during the quarter to Rs 61 bn from Rs 52.8 bn. Its operating expenses during the quarter came down to Rs 47.2 bn from Rs 51.6 bn in the year-ago period.

PNB's asset quality impaired

The reduction in provisions for bad loans and asset quality stability may have aided the lender's earnings.

Although the lender's provisions remained almost flat at Rs 46.8 bn, provisions for non-performing assets (NPAs) dropped 32% YoY to Rs 32.5 bn.

The bank's asset quality impaired further with the gross non-performing assets reaching 14.3% of the gross advances by 30 June 2021, from 14.1% a year ago and 14.1% as of March 2021.

Its total recovery including cash recovery and account upgradation during the quarter improved to Rs 82.7 bn, the bank said. The bank's provision coverage ratio stands at 80.3% as on 30 June 2021.

Its capital to risk weighted asset ratio (CRAR) improved to 15.2% in June 2021 from 12.6% in June 2020.

On the bank's quarterly performance amid Covid-19, the lender stated,

• The extent to which the Covid-19 pandemic will impact the Bank's results will depend on future developments, which are highly uncertain including among other things, the success of vaccination drive.
  
  The major identified challenges for the Bank would arise from eroding cash flows and extended working capital cycles. The Bank is gearing itself on all the fronts to meet these challenges.

Equitymaster's view on Punjab National Bank's performance

We reached out to Aditya Vora, financial writer at Equitymaster, and editor of the Profit Hunter, for his view on PNB Bank's earnings.

Here's what he has to say.

• PNB trades at inexpensive valuations compared to its peers in the public sector primarily due to weak asset quality and weaker loan growth.
  
  While NCLT related positives could be a trigger for the stock in the fiscal 2022, asset quality of corporates and SMEs will have to be closely watched.
  
  The joker in the pack lies with how recovery from COVID plays out, helping us asses the asset quality on its books.
  
  While I remain optimistic on the capex cycle from the private sector going forward, the above mentioned factors are critical for re rating of PNB.

How the stock markets reacted to Punjab National Bank

Shares of Punjab National Bank opened the day at Rs 41.4 on the BSE and Rs 41.5 on the NSE.

Its share price closed at Rs 40.3 (down 1.1%) on the BSE and Rs 40.3 (down 1.1%) on the NSE.

At its current price, it is trading at a P/E of 20.7.

The share touched its 52-week high of Rs 46.4 and 52-week low of Rs 26.3 on 2 June 2021 and 29 October 2020, respectively.

Over the last 30 days, the Punjab National Bank share price is down 4.4%. Over the last one year, the company's share price is up 27.4%.

About Punjab National Bank

Punjab National Bank, abbreviated as PNB, is an Indian government owned bank.

It's under the ownership of ministry of finance, government of India headquartered in New Delhi, India.

The bank was founded in 1894 and is the second largest government owned bank in India, both in terms of business and its network.

The bank has over 180 m customers, 12,248 branches and 13,000+ ATMs post-merger with United Bank of India and Oriental Bank of Commerce, effective from 1 April 2020.

PNB has a banking subsidiary in the UK (PNB international bank, with seven branches in the UK), as well as branches in Hong Kong, Kowloon, Dubai, and Kabul.

For more details about the company, you can have a look at Punjab National Bank factsheet and quarterly results on our website.

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