PNB investors see no end in sight from bad loans

Endless bad loans for PNB investors

The Punjab National Bank (PNB) made no progress in its 21st fiscal year. The bank has not reported further deterioration in its asset quality, although it is unclear whether the bank will be able to reduce its non-performing loans in the 22nd fiscal year.

The key data of PNB asset quality has hardly changed. Although the loan portfolio fell by 3%, the total loan default rate in FY21 remained at 14%. In addition to reducing income from non-performing loans. The 6% delay in FY21 should be encouraging, and the fact that lenders have restructured less than 2% of their loan portfolio is also a comfort. Compared with the fiscal year 2020, the non-performing loans in fiscal year 21 show that in the pandemic year, bad debts have not deteriorated much.PNB investors see no end in sight from bad loans

However, the sharp decline in upgrades and restoration made up for this convenience. More than a month overdue, they rose. Restructuring loans may not account for a large proportion of the total investment portfolio, but they will not persist. Regulators allow banks to delay restructuring in FY22, and GDP may increase. The lender provided a loan portfolio of 1.26 trillion pounds for the most vulnerable small businesses, accounting for 17% of its loan portfolio. Small businesses account for 20% of the lender’s problematic loans.

Another cause for concern is the significant increase in the number of non-performing loans in the PNB retail portfolio. The bank’s 5% of retail loans deteriorated in FY21, an increase of 3.4% from the previous year. Of course, the weakest portfolio is still small, medium and micro enterprises, and their portfolio has deteriorated by 20%. 

PNB’s long struggle with bad loans has kept the stock trading at a large discount to its estimated book value for FY22. Jefferies India Pvt Ltd analysts summarize the reason for these failed evaluations. “The performance of PNB in ​​terms of asset quality lags behind the competition and has a negligible buffer for provisions. In addition, its weak core operating profitability profile offers a little cushion against credit cost shocks, ”they wrote in a press release.

 The bank’s last Raised Rs 1,800 crore through Qualified Institutional Placement (QIP) in March. The general Tier 1 capital ratio in March was 10.62%, and the total capital adequacy ratio was 14.32%, which was higher than the minimum regulatory requirements. However, the funds raised did not benefit the stock. This is mainly due to poor asset quality. As more funds are allocated to non-performing loans, SDIC’s loan growth will remain modest, which means that investors have no breathing room.


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