PSU Bank To Bank On

Punjab National Bank 

ABOUT THE INDUSTRY
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. 

ABOUT THE BANK
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. 

FINANCIAL PERFORMANCE
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 Rs 11,886.53 crore in Q4FY17 on a yearly basis. The bank posted an operating profit of Rs 6,231.79 crore in Q4FY17, up by 137.78 per cent on a year-on-year basis, as against an operating profit of Rs 2,620.87 crore in Q4FY16. The bank posted profit after tax of Rs 261.90 crore in the fourth quarter of FY17, up by a massive 104.88 per cent, as against a net loss of Rs 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 Rs 47,275.99 crore in FY17 from Rs 6.65 crore in the previous fiscal.

However, the operating profit of the bank was up by 28.45 per cent, to Rs 14,565.16 crore in FY17, as against operating profit of Rs 11,339.38 crore in the previous fiscal. The profit after tax of the bank also witnessed a massive increase by 133.33per cent to Rs 1,324.80 in FY17, as against a net loss of Rs 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 Rs 55818 crore in FY16 to Rs 55370 crore in FY’17, whereas the net NPAs stood at 32702 crore in FY17 from Rs 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 to58.57 per cent in FY17. 

OPERATIONS
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 Rs 4545 crore in the FY2017. The assets under management of the PSB stood at Rs 814 crore, while it earned brokerage worth Rs 4 crore during the fiscal. 

With growing operations in the insurance, the bank earned about Rs 110 crore from its life insurance business in the FY2017, as against Rs 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 Rs 28 crore in FY17, recording a growth of 15 per cent, as against a revenue of Rs 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 Rs 2,597 crore and earning income of over Rs 6.15 crore from the segment.

 The bank's interest income from investment portfolio rose from Rs 11,935 crore in FY16 to Rs 12,439 crore in FY17, while the total trading profit, including the derivatives, witnessed a stark rise from Rs 999 crore in FY16 to Rs 2654 crore in FY17. The gross domestic investment also witnessed a surge from Rs 154,727crore as on March 31, 2016 to Rs 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 Rs 2214 crore in FY17, as against a trading profit of Rs 504 crore in the corresponding period of the previous year. In the equity segment, the bank booked a trading profit of Rs 168 crore and dividend income of Rs 96 crore. While the net forex income of the bank decreased from Rs 1155 crore in FY17 to Rs 1320 crore in FY16, the exchange profit from treasury operations of the bank increased from Rs 386 crore in FY16 to Rs 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 Rs 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 Rs 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 Rs 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 Rs 186 crore, while the increasing portfolio almost doubled the total secondary market outright turnover to Rs 6.5 lakh in FY17 from Rs 3.8 lakh crore in FY16. 

PNB's global business turnover hit Rs 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 Rs 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 Rs 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 Rs 10 lakh crore, the CASA deposits also surpassed the Rs 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 Rs 6.12 crore in FY16 to Rs 6.33 crore in FY17. On back of healthy CASA growth and improving NPA situation we recommend investors to BUY Punjab National Bank.