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PNB: Asset quality stands testimony
Nov 2, 2009

Performance summary
  • Interest income grows by 21% YoY in 1HFY10 on the back of 25% YoY growth in advances.
  • Net interest margin drops marginally to 3.6% in 1HFY10 due to lower proportion of CASA.
  • Cost to income ratio comes down to 43% from 45% in 1HFY09.
  • Growth in other income led by higher treasury income and 25% YoY growth in fees.
  • CAR comfortable at 14.7% as per Basel II, Net NPA at 0.1% of advances.


Rs (m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Interest income 46,504 54,072 16.3% 87,888 106,146 20.8%
Interest Expense 29,382 33,123 12.7% 56,319 66,579 18.2%
Net Interest Income 17,122 20,949 22.4% 31,569 39,567 25.3%
Net interest margin (%)       3.8% 3.6%  
Other Income 6,628 6,686 0.9% 11,189 16,387 46.5%
Other Expense 10,072 11,573 14.9% 19,256 24,199 25.7%
Provisions and contingencies 3,177 2,159 -32.0% 5,283 5,178 -2.0%
Profit before tax 10,501 13,903 32.4% 18,219 26,577 45.9%
Tax 3,430 4,634 35.1% 6,025 8,989 49.2%
Profit after tax / (loss) 7,071 9,269 31.1% 12,194 17,588 44.2%
Net profit margin (%) 15.2% 17.1%   13.9% 16.6%  
No. of shares (m)       315.3 315.3  
Book value per share (Rs)*         473.0  
P/BV (x)         1.8  
* Book value as on 30th September 2009

What has driven performance in 2QFY10?
  • Keeping its focus on loan growth in the corporate and agricultural segments, PNB managed 25% YoY growth in advances in 1HFY10. PNB has one of the largest proportions of agricultural debt due to its presence in the Gangetic belt. The growth of 24% YoY in deposits was with commensurate growth in low cost deposits (CASA) during the past six months. Having said that, PNB’s CASA proportion has been coming down steadily over the past few quarters and stood at 39% at the end of 1HFY10. The bank also witnessed pressure on its net interest margins due to the downward re-pricing of loans. We have estimated the bank’s NIM at 3.5% for full year FY10.

    Going slow on retail…
    (Rs m) 1HFY09 % of total 1HFY10 % of total Change
    Advances 1,304,320   1,635,590   25.4%
    Retail 159,090 12.2% 170,330 10.4% 7.1%
    Corporate 526,780 40.4% 713,810 43.6% 35.5%
    Agriculture & others 618,450 47.4% 751,450 45.9% 21.5%
    Deposits 1,863,150   2,308,230   23.9%
    CASA 723,680 46.0% 888,260 38.8% 22.7%
    Term deposits 1,139,470 54.0% 1,419,970 57.0% 24.6%
    Credit deposit ratio 70.0%   70.9%    

  • The overall delinquency rate for the bank showed no signs of stress at the gross and net levels. NPAs reduced at the gross level from 2.2% in 1HFY09 to 1.6% in 1HFY09 and at the net level from 0.4% to 0.1%. The bank has one of the highest provision coverage ratio (of 91%) in the sector at the end of 1HFY10.

  • The superior growth in other income in 1HFY10 can be primarily attributed to higher treasury income and 25% growth in fee income. The proportion of fee to total income was 17% at the end of 1HFY10. The bank had 79% of investments in the HTM basket. It also earned 10% of the fee-based income by transacting the government business. The bank is a principal banker for Ministry of Corporate Affairs, Ministry of Finance, Ministry of Personnel, Public Grievances and Pension and Ministry of Civil Aviation and Tourism.

  • PNB had restructured loans to the tune of Rs 100 bn at the end of 1HFY10, of which loans worth Rs 98 bn were standard assets.

  • The book value per share for PNB shareholders from PNB Housing Finance and PNB Gilts stood at Rs 5 and Rs 11.8 respectively at the end of September 2009.

What to expect?
At the current price of Rs 854, the stock is valued at 1.1 times our estimated FY12 adjusted book value. Sustenance of a healthy current and savings account mix, technological upgradation and ability to sustain attractive margins are key to the bank’s healthy growth prospects. Also, the bank’s healthy CAR as per Basel II compliance with revised AS-15 is a matter of comfort. Having said that, the low proportion of fee income and agricultural delinquencies are our lingering concerns with regard to the bank. We retain our positive view on the stock .

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