PNB’S prof it up; finances under stress

Though Punjab National Bank (PNB) posted a rise in profit before tax (PBT) of ~633 crore in the September quarter (Q2), its finances showed signs of stress, when it is going to acquire two public sector banks from the next financial year.

In terms of profitability, PNB was in a better position than the same quarter in the last fiscal. Its net profit stood at ~507 crore in Q2, compared to a net loss of ~4,532 crore in the same quarter last fiscal year. In Q1, the bank’s net profit stood at ~1,019 crore. PNB’S stock price closed lower by 5 per cent at ~64.75 on Tuesday.

From April 1, PNB will take over United Bank and Oriental Bank of Commerce. On the positive side, the bank had sufficient capital buffer, six months before going in for amalgamation. Its common equity tier (CET)-1 ratio rose sharply to 10.94 per cent (of risk-weighted assets) at the end of Q2, up from 6.35 per cent at Q1-end, due to capital infusion of ~16,091 crore by the central government — much above the regulatory requirements of 5.5 per cent.

But the picture doesn’t seem to be rosy, looking at the bank’s balance sheet closely, as it hasn’t yet transited into a new corporate tax regime and has decided to defer some fraudrelated provisioning — both of which could have impacted the bank’s profitability in Q2.

PNB deferred provisioning to the tune of ~2,284 crore to subsequent quarters related to fraud accounts, taking benefits of a dispensation provided by the Reserve Bank of India (RBI), otherwise it could have impacted profitability of the bank.

Further, the bank has not implemented the new tax regime, which came into effect through the Taxation Laws (Amendment) Ordinance, 2019 in September, and it said it “continued to recognise the taxes on income” according to earlier provisions of the Income Tax Act in the first half of this financial year.

Lenders will have to reduce their deferred tax assets, following the corporate tax cut announced by the government, which will have an impact on their profitability. It remains to be seen how the bank switches to the new tax regime in the remaining half of the year.

Net non-performing assets (NPAS) rose to 7.65 per cent of total advances in Q2, above the RBI’S comfort level of 6 per cent, compared to 7.17 per cent in the previous quarter.

Provisioning related to bad loans went up to ~3,253 crore in Q2, up from ~2,147 crore in the previous quarter.