A fall in bad loans, better recoveries and stronger credit growth is how managing director and chief executive officer SS Mallikarjuna Rao is forecasting the next few quarters would be for Punjab National Bank (PNB).

The country’s second-largest public sector bank, which posted a 78% year-on-year jump in net profit for the September quarter to Rs 1,105 crore, is looking to trim its gross non-performing assets (NPA) from 13.63% to below 13% of its gross advances by the end of the year.  

 “We are expecting our net NPA ratio to also fall to 4%. We have already brought it down to 5.49% in the September quarter due to better recoveries and upgrades. We are confident of controlling slippages and are expecting recoveries in various accounts in the next two quarters,” said Rao.  

The bank’s recoveries and upgrades at Rs 9,126 crore in the September quarter outpaced the fresh slippages which stood at Rs 9,077 crore, helping it to boost its profitability. In fact, the bank’s half-yearly profit this fiscal has already crossed the entire profit it made in FY21. For the six-month period ended September 30, 2021, the bank posted a 129% year-on-year rise in net profit to Rs 2,129 crore compared to Rs 2,022 crore in the full fiscal of FY21. The bottom line was also propped up by a tax provision write back of Rs 345 crore. 

The trend of recoveries running ahead of new slippages is expected to continue as NCLT (National Company Law Tribunal) cases, one-time settlement and write backs will get added once resolutions take place.

PNB is expecting Rs 1,500 crore from NCLT accounts in the second half of the current financial year. In the third quarter itself, 20 accounts are expected to get resolved with the write back of Rs 800 crore while in Q4 seven accounts are likely to get resolved with write back of Rs 750-800 crore.

In the fiscal second quarter, the bank received Rs 1,271 crore from Dewan Housing Finance Corporation (DHFL), the ailing housing finance company which is now taken over by the Piramal group. This money was used to undertake a 40% provision for Srei Infrastructure, where PNB has an exposure of Rs 2,800 crore in two accounts. Besides Srei, the bank had slippages of Rs 790 crore from Entertainment City (Zee Entertainment) and Rs 200 crore from the corporate accounts while the rest came from retail, agriculture and micro, small and medium enterprises (MSME).

PNB, which has a gross NPA of Rs 1,00,290.85 crore as on September 30, 2021, will transfer Rs 8,800 crore to the National Asset Reconstruction Company (bad bank). Of this, the bank will transfer Rs 6,700 crore by the end of December 31, 2021, for which is it is expecting a cash recovery of Rs 162 crore. The remaining amount will be transferred in the fourth quarter. 

PNB is expecting its interest margin to improve with the Reserve Bank of India (RBI) aiming to bring down excess liquidity in the market. “Due to the  high  level of liquidity available, large amount of repricing has taken place in many of the corporate accounts during the quarter. Wherever we have funded at MCLR-based rates, it has been repriced at repo or G-Sec linked prices. That has had a major impact on the interest income. I expect this to moderate from December onwards. With other factors contributing, we have seen lower operating margin, lower net interest margin and lower operating profit. But this I expect to improve in the current quarter. Even RBI has indicated that they will being down the excess liquidity to Rs 2.5 trillion by the second week of December,” said  Rao.

The net interest income (NII) in the September quarter fell 24.9% year-on-year to Rs 6,352.81 crore. In the year-ago period, the bank had reported NII of Rs 8,454.97 crore. 

The bank’s operating profit stood at Rs 4,021.12 crore in September 2021, down 27.1% from Rs. 5,516.14 crore a year ago.

PNB, which saw its advances rise 3.2% to Rs 6,73,225.82 crore in the fiscal second quarter,  is looking to post 6-8% credit growth by the end of the fiscal. “Credit growth is going to be good. We have a sanctioned pipeline of Rs 1.25 lakh crore.  Of this, Rs 68,000 crore is sanctioned while the remaining  Rs 57,000 crore is an in-principle approval,” Rao told analysts.

In the last three quarters, PNB had seen tremendous amount of competition from various banks to take over its MSME loans. The bank then took a review in all the zones and examined the rates offered by the competitors who were poaching these loans. “There was a call taken by us that not a single account should be taken over. That we have achieved from July onwards. There has been reasonable growth in our loan book after we launched a campaign from October 1. This has created a strong sanction pipeline,” added Rao.

The bank's deposits stood at Rs 11.15 lakh crore, up 4.3% from Rs 10.69 lakh crore in the year-ago quarter.

The bank’s total income for the second quarter ended September stood at Rs 21,262.32 crore, lower than the Rs 23,279.79 crore reported a year ago. 

Provisions and contingencies stood at Rs 3,261.37 crore, down 28.1% from Rs 4,537 crore a year ago. Of this, the provision for non-performing assets (NPAs) amounted to Rs 2,692.74 crore, down 29.3% year-on-year.