PNB hopes ~7.3 bn boost in profits

Punjab National Bank (PNB), which saw the highest net loss by any bank in a quarter at ~134 billion during JanuaryMarch, believes the insolvency resolution at Bhushan Steel will have a positive impact on profits to the tune of ~7.35 billion in the June quarter.

Also, it hopes bad debts will fall by ~38.57 billion after the acquisition of Bhushan by Bamnipal Steel (BNPL), a wholly-owned subsidiary of Tata Steel. While the bank will recover ~30.5 billion of the dues, it will also be able to write off ~8.07 billion from the provision it had made for this non-performing assets (NPA), sources said. PNB had the second-highest exposure among the lenders to Bhushan.

After the buyout, PNB and other lenders will continue to own 12 per cent in the acquired entity, giving them the opportunity to cash out when valuation of the firm goes up.

With a current market capitalisation of ~5.98 billion, at ~27.75 per share for Bhushan, the share for lenders works out to ~720 million. BNPL has acquired 72.65 per cent stake in Bhushan by paying ~364 billion, of which ~352 billion will be to financial creditors.

This is the second resolution from the first list of 12 major accounts identified by the Reserve Bank of India. The first one was Vedanta buying Electrosteel. PNB said more such resolutions could help PNB’s loan book. Its gross NPAs at end-March was ~866 billion.

The balance sheet was also hit by fraudulent loans of ~143 billion to the jewellery firms of Nirav Modi and Mehul Choksi. PNB had to provision ~102 billion in its books after RBI’s new stressed assets resolution norm. The provision is ~71.8 billion towards the fraud, half the amount involved.

PNB’s loss in the fourth quarter of 2017-18 was higher than the combined loss

of Allahabad Bank, Union Bank of India, Axis Bank, UCO Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra in the same period.