Punjab National Bank Stock Falls On Share Sale, High Stressed Loans 
Pedestrians walk past an advertisement for Punjab National Bank (PNB) in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)  

Punjab National Bank Stock Falls On Share Sale, High Stressed Loans 

Shares of Punjab National Bank fell after the lender launched an institutional share sale and its offer document revealed a high level of stress on its books.

The government-owned lender, on Monday evening, opened its qualified institutional placement issue with a floor price of Rs 35.51 per share. The bank had last raised Rs 3,788 crore in December 2020 but failed to garner the full amount it had sought.

The bank has a capital adequacy ratio of 13.88%. PNB’s Rs 1,200-1,800 crore equity capital raise will add 20-30 basis points to common equity tier-1, Kotak Institutional Equities said in a note.

In the prospectus for its QIP issue, the bank detailed a high level of stressed loans on its books.

  • The bank has 20% in loans falling in the special mention categories of advances, which are overdue by 1-90 days.
  • Of this, 9% of loans fall in the SMA-2 category, where loans are overdue by 60-90 days.
  • This is in addition to the 13% gross NPA ratio reported by the bank at the end of the December quarter.

The bank is yet to report March-quarter earnings.

PNB merged with Oriental Bank of Commerce and United Bank of India with effect from April 1, 2020. As such, its December-quarter numbers are not comparable to a year earlier. However, even compared to the June quarter, stressed loans have risen significantly, said Nomura in a report.

“December 2020 over June 2020 saw a jump of approximately 2.2 times in the number of SMA-2 accounts, against which the overall SMA-2 by value increased by 5.8x, implying significant deterioration in asset quality,” Nomura said. The stress build-up, the brokerage said, appears to be coming from smaller ticket loans.

With the stress emerging from retail and MSME accounts, this “raises concerns on near-term asset quality given the impact of the second wave of Covid-19”, Kotak said in its report. “This cycle is unlikely to be as painful as the corporate non-performing loan cycle, however, recovery in growth/profitability is pushed out.”

PNB is the second large public sector lender, after Bank of Baroda to disclose high levels of stress. “The two largest PSU banks after SBI have reported close to ~20% overdue loans (not classified as NPLs). If this is the state with large PSU banks, the situation with many other smaller PSU banks could equally be alarming,” said Suresh Ganapathy, analyst at Macquarie Research in a note. “This clearly shows that PSU banks have borne the brunt of Covid-related disruptions on their borrower segment.”

Shares of PNB fell as much as 5.2% to Rs 33.75 apiece before paring losses.

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