PNB reported a loss on the back of high provisions for bad loans.

Net NPLs at a 12-quarter low. PNB reported a loss led by higher provisions for bad loans. Net NPLs have declined ~45% from peak levels but still remain quite high at ~6% of loans. The bank is currently comfortable from a capital perspective with CET-1 ratio at 11% but we are still waiting to understand the financial position of the combined bank, especially on impairment and retirem-ent-related costs along with the progr-ess of the merger. We shall reinstate our rating as we get clarity by 1HFY21E.

PNB reported a loss on the back of high provisions for bad loans. Revenues rose 18% yoy on the back of ~11% yoy increase in NII but a strong 34% yoy gro-wth in non-interest income. The quarter had strong contribution from treasury and recovery from written-off loans. Lo-ans grew 3% yoy and ~10% qoq. Tier-1 capital is at 11.9% with CET-1 at 10.7%. The overall deposits, despite all the cha-llenges they have faced in recent quar-ters, have been quite impressive. CASA ratio is at 44% with lower-than-expec-ted damage post the NPLs in the gems and jewellery portfolio. Since 4QFY18, CASA deposits have grown at 15% CAGR while term deposits grew 6%.

The bank has ended FY2020 with gross NPLs at 14% and net NPLs at 5.8% of loans. From the peak, the absolute decline has been 15% in gross NPLs and ~45% in net NPLs. The provision coverage ratio was up 250 bps qoq at 63% (78% including write-off). Slippages were higher at 5% of loans but there has been a strong performance on recovery and upgrades as well. The bank has a decent pipeline of cases to be recovered through the NCLT process, which should imply that FY2021 should see further improvement in headline ratios. The bank has not been too aggressive on retail and this is reflected in ~30% of loans under moratorium. Post the merger, we would need to monitor the slippages of the combined portfolio till we get comfort on asset quality.