Pun­jab Na­tional Bank : PSU Bank To Bank On

Pun­jab Na­tional Bank to cap­i­talise larger prof­its from its di­ver­si­fied pres­ence in the fi­nance sec­tor.

Dalal Street Investment Journal - - CONTENTS -


The In­dian bank­ing sec­tor has al­most re­cov­ered from the blow of de­mon­eti­sa­tion and the wrath of the Re­serve Bank of In­dia over bur­geon­ing NPAS and is now wit­ness­ing boom in the stock mar­kets with oper­a­tions back on prof­itable tra­jec­tory. The In­dian bank­ing sec­tor is spread across the nooks and cor­ners of the coun­try and has the largest num­ber of bank branches in the world

While the to­tal lend­ing in the sec­tor has in­creased at a CAGR of 12.38 per cent be­tween the pe­riod FY07 and FY17, the to­tal de­posits wit­nessed a rise of 10.08 per cent CAGR dur­ing the cor­re­spond­ing time pe­riod, hit­ting

USD 1.54 tril­lion by FY17. The ag­gre­gate lend­ing is fur­ther ex­pected to grow on strong de­mand for hous­ing and per­sonal fi­nance. Ac­cord­ing to the es­ti­mates by ICRA, the In­dian bank­ing sec­tor is ex­pected to wit­ness a credit growth by about 8 per cent in the FY2018. The to­tal as­sets of the bank­ing sec­tor also wit­nessed a growth of 7.61 per cent CAGR to USD 1.957 tril­lion be­tween the time pe­riod FY13 and FY16.


The gov­ern­ment-owned Pun­jab Na­tional Bank pro­vides a wide range of bank­ing ser­vices through four seg­ments trea­sury, cor­po­rate/whole­sale bank­ing, re­tail bank­ing and other bank­ing oper­a­tions. The bank­ing ser­vices pro­vided by the bank in­clude dig­i­tal bank­ing, per­sonal bank­ing, so­cial bank­ing, mi­cro, small and medium en­ter­prises (MSME) bank­ing, agri­cul­tural bank­ing, cor­po­rate bank­ing, in­ter­na­tional bank­ing or non-res­i­dent In­dian (NRI), and fi­nan­cial ser­vices.

On the dig­i­tal front, the bank pro­vides ser­vices in­clud­ing PNB re­tail in­ter­net bank­ing, PNB cor­po­rate in­ter­net bank­ing, PNB mo­bile bank­ing and PNB SMS bank­ing. Be­sides pro­vid­ing the tra­di­tional bank­ing ser­vices, in­clud­ing sav­ings bank ac­count, fixed de­posit schemes and cards, cor­po­rate ser­vices and fi­nan­cial ser­vices, the bank largely con­trib­utes to­wards fi­nan­cial in­clu­sion and pri­or­ity sec­tor.


The bank posted a strong fi­nan­cial per­for­mance both on an­nual and quar­terly ba­sis. On the quar­terly front, PNB posted a 9.82 per cent in­crease in the in­ter­est in­come to ₹11,886.53 crore in Q4FY17 on a yearly ba­sis. The bank posted an op­er­at­ing profit of ₹6,231.79 crore in Q4FY17, up by 137.78 per cent on a year-on-year ba­sis, as against an op­er­at­ing profit of ₹2,620.87 crore in Q4FY16. The bank posted profit after tax of ₹261.90 crore in the fourth quar­ter of FY17, up by a mas­sive 104.88 per cent, as against a net loss of ₹5,367.14 crore in Q4FY16.

On an an­nual ba­sis, the bank’s in­ter­est in­come de­clined by a mar­ginal 0.31 per cent per cent to ₹47,275.99 crore in FY17 from ₹6.65 crore in the pre­vi­ous fis­cal.

How­ever, the op­er­at­ing profit of the bank was up by 28.45 per cent, to ₹14,565.16 crore in FY17, as against op­er­at­ing profit of ₹11,339.38 crore in the pre­vi­ous fis­cal. The profit after tax of the bank also wit­nessed a mas­sive in­crease by 133.33 per cent to ₹1,324.80 in FY17, as against a net loss of ₹3,974.39 crore in FY16.

On the val­u­a­tion front, the share price of PNB is trad­ing at a PE mul­ti­ple of PNB 25.53x, as against its peers such as SBI (24.63x), and Bank of Bar­oda (26.9x), while the bank­ing sec­tor PE stood at 25.53x.

The bank has re­sorted to war room ef­fort to bat­tle the bur­geon­ing NPAS and has ac­cel­er­ated the rate of re­duc­tion in NPAS. The bank’s gross NPAS have re­duced from ₹55818 crore in FY16 to ₹55370 crore in FY’17, whereas the net NPAS stood at 32702 crore in FY17 from ₹35423 crore in FY16.

The re­duc­tion in NPAS was also largely driven by the Joint Lend­ing Fo­rum mech­a­nism and the bank’s flex­i­ble ap­proach to­wards it. On the ba­sis of ra­tio, the gross NPA ra­tio stood at 12.53 per cent in FY17, as against 12.90 per cent in FY16 and the net NPA ra­tio stood at 7.81 per cent in FY17 as against 8.61 per cent in FY16. Be­sides the re­duc­tion in NPAS, the PCR of the bank also im­proved from 51.06 per cent in FY16 to

58.57 per cent in FY17.


The bank cap­i­tal­izes larger prof­its from its di­ver­si­fied pres­ence in the fi­nance sec­tor. In the mu­tual funds seg­ment, which has been zoom­ing off late, the bank boasts of se­cur­ing funds worth ₹4545 crore in the FY2017. The as­sets un­der man­age­ment of the PSB stood at ₹814 crore, while it earned brokerage worth ₹4 crore dur­ing the fis­cal.

With grow­ing oper­a­tions in the in­sur­ance, the bank earned about ₹110 crore from its life in­sur­ance busi­ness in the FY2017, as against ₹86 crore worth of busi­ness in FY16, record­ing a growth of 28 per cent. In the non-life in­sur­ance seg­ment, the bank earned rev­enue of about ₹28 crore in FY17, record­ing a growth of 15 per cent, as against a rev­enue of ₹25 crore from the seg­ment in FY16; head­ing the seg­ment with its cus­tomised health in­sur­ance policy ‘Pnb-ori­en­tal Royal Medi­claim’.

In the mer­chant bank­ing seg­ment, the bank han­dled over 454,000 ap­pli­ca­tions, sup­ported by blocked amount (ASBA) ap­pli­ca­tions against 85 is­sues, block­ing a sum worth ₹2,597 crore and earn­ing in­come of over ₹6.15 crore from the seg­ment.

The bank's in­ter­est in­come from in­vest­ment port­fo­lio rose from ₹11,935 crore in FY16 to ₹12,439 crore in FY17, while the to­tal trad­ing profit, in­clud­ing the de­riv­a­tives, wit­nessed a stark rise from ₹999 crore in FY16 to ₹2654 crore in FY17. The gross domestic in­vest­ment also wit­nessed a surge from ₹154,727 crore as on March 31, 2016 to ₹183,297 crore on March 31, 2017, reg­is­ter­ing 18.46 per cent an­nual growth.

From the sale of in­vest­ments in the fixed in­come seg­ment, the bank booked a trad­ing profit of ₹2214 crore in FY17, as against a trad­ing profit of ₹504 crore in the cor­re­spond­ing pe­riod of the pre­vi­ous year. In the eq­uity seg­ment, the bank booked a trad­ing profit of ₹168 crore and div­i­dend in­come of ₹96 crore. While the net forex in­come of the bank de­creased from ₹1155 crore in FY17 to ₹1320 crore in FY16, the ex­change profit from trea­sury oper­a­tions of the bank in­creased from ₹386 crore in FY16 to ₹547 crore in FY17.

As the bank is in­ten­si­fy­ing its reach in the domestic mar­ket, its global pres­ence has also seen a rise with over 5 per cent growth in its for­eign ex­change turnover to ₹140,814 crore for the fi­nan­cial year 2017. With the in­cor­po­ra­tion of its in­ter­na­tional ser­vice branch, the bank has also wit­nessed slow but steady rise in han­dling re­mit­tance busi­nesses which has grown to over ₹58147 crore.

Boost­ing the bank's fi­nan­cial rigour, the sub­sidiaries of the bank have also been pro­vid­ing high growth on fi­nan­cial and op­er­a­tional fronts. Lead­ing the sub­sidiaries, PNB Gilts Lim­ited, with 74.07 per cent stake held by PNB, the com­pany posted its all-time high net profit of ₹257 crore in FY17.

Ag­gres­sively ful­fill­ing the role of a pri­mary dealer in both sec­ondary and pri­mary mar­kets, PNB Gilts posted an im­pres­sive op­er­at­ing profit of ₹186 crore, while the in­creas­ing port­fo­lio al­most dou­bled the to­tal sec­ondary mar­ket out­right turnover to ₹6.5 lakh in FY17 from ₹3.8 lakh crore in FY16.

PNB'S global busi­ness turnover hit ₹10,41,197 crore for the FY2017, wit­ness­ing a growth of nearly 8 per cent on a year-on-year ba­sis. The global de­posits with the bank grew to ₹621,704 crore, up by 12.4 per cent for FY17. Fur­ther, the global net ad­vances of the bank posted a growth of nearly two per cent, hit­ting ₹419,493 crore as on March 31, 2017. The bank also recorded a 26.5 per cent CASA growth with the share of CASA to domestic de­posits ris­ing to 46 per cent, while its ag­gre­gate busi­ness fig­ures rose to ₹10 lakh crore, the CASA de­posits also sur­passed the ₹2.6 lakh crore mark.

Among the other sub­sidiaries of the bank, Pun­jab Na­tional Bank In­ter­na­tional Lim­ited (PNBIL) wit­nessed a 47.26 per cent de­crease in its op­er­at­ing profit be­fore pro­vi­sions, tax and div­i­dend for FY17 and over 35 per cent de­cline in its to­tal in­come. Pun­jab Na­tional Bank In­vest­ment Ser­vices Lim­ited (PNBISL), with 100 per cent own­er­ship of stake of PNB, posted a mar­ginal in­crease in its net profit from ₹6.12 crore in FY16 to ₹6.33 crore in FY17. On back of healthy CASA growth and im­prov­ing NPA sit­u­a­tion we rec­om­mend in­vestors to

BUY Pun­jab Na­tional Bank.

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