Analysis: PNB, a prospect for RBI’s loan curbs

Analysis: PNB, a prospect for RBI’s loan curbs

Analysis: PNB, a prospect for RBI’s loan curbsNet NPA of almost 12% makes lender candidate; stock tanks 12% after record loss

Punjab National Bank, which reported a record fourth-quarter loss of ₹13,417 crore due to a sharp rise in bad loans in the wake of the letters-of-undertaking (LoU) scam, may have become a candidate to attract the imposition of lending sanctions by the Reserve Bank of India.

In the last one week, the bankingregulator has barred two public sector banks from extending fresh loans due to the deterioration of their financial health.

As on March 31, PNB’s net non-performing assets (NPAs) was 11.24% (compared with 7.8% a year earlier) breaching the second risk threshold on asset quality, according to the prompt corrective action framework of the RBI. The second risk threshold on bad loans is triggered when net NPA crosses 9%. The final threshold is triggered when net NPA hits 12%. The fourth- quarter numbers show PNB is inching closer to the final threshold.

Last Friday, Dena Bank said the RBI had imposed loan curbs due to ‘high net NPA’ and ‘negative RoA’ (return on asset). Dena Bank’s net NPA as on March 31 was 11.95% with -1.59% RoA. On Monday, Allahabad Bank said it also faced loan curbs as it had breached the minimum capital requirement.

PNB, in which the Centre infused ₹5,400 crore in the previous fiscal, also saw its capital depleted at the end of the fourth quarter. Its capital adequacy ratio was 9.2%, just above the minimum regulatory requirement of 9%. The return on assets for FY18 was -1.6%.

The lender has made only 50% (₹7,178.42 crore) of the provisioning that was required for the LoU fraud and the remaining will be made in the next three quarters.

“Provisioning would remain high in the medium term which makes the medium outlook less certain,” Kotak Securities said in a note to clients after PNB’s Q4 earnings. “The ramifications of the big fraud on the bank… [have] been far higher than … anticipated.

“The bank has consumed a lot more capital and there would be further impact on Tier-1 ratio in the ensuing quarters till the balance sheet is stabilised.” On Wednesday, PNB shares saw their biggest single-day fall in almost 14 years, declining 12.15% to ₹75.55, its lowest close since May 26, 2016.

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