Punjab National Bank: A Robust Financial Performance

Punjab National Bank (PNB) has demonstrated a remarkable financial performance over the past three quarters, driven by higher loan book growth and margins. As the second-largest public sector bank in the country, PNB has a strong presence in the northern regions and has been aggressive in expanding its network, with plans to add 350 branches by the end of the fiscal year. The bank's history of growth through inorganic means has made it a notable player in the industry.

Key Takeaways:

• PNB's loan book growth has outpaced the industry, averaging 27% year-on-year over the past three quarters, compared to the industry's 19%.
• The bank's net interest income has grown by 45% in the same period, driven by its higher share of low-cost deposits, which form 41% of its total deposits.
• PNB's operating profit before provisions and contingencies has grown in excess of 30%, but higher provisioning costs have limited the bank's bottom line growth.
• The bank has achieved its target net interest margin of over 3.5% for the past five quarters and has changed its strategies as per the business environment, such as taking high-cost bulk deposits during economic turmoil.
• PNB has started offering correspondent banking services to other banks and has floated a subsidiary for merchant banking and loan syndication activities.
• The bank's stock is trading at 2.1 times its book value, cheaper compared to its larger peer State Bank of India, and has a good dividend paying history, with a payout of around a fifth of its earnings for the past four years.
• Investors with a medium to long-term perspective can consider the stock, despite concerns over the bank's asset quality, which has deteriorated over the past two quarters, with net non-performing assets averaging 0.7% as against 0.2% the previous year.

Statistics:

• PNB's loan book growth: 27% year-on-year over the past three quarters.
• Net interest income growth: 45% over the past three quarters.
• Operating profit before provisions and contingencies growth: 30% over the past three quarters.
• Net interest margin: over 3.5% for the past five quarters.
• Share of low-cost deposits: 41% of total deposits.
• Cost of borrowing: PNB takes high-cost bulk deposits at around 9% and lends them at around 13%.
• Beta of the bank's stock: 0.8, lower than its peer's 1.1.
• Dividend payout: around a fifth of earnings for the past four years.
• Net non-performing assets: averaged 0.7% over the past two quarters.

Sources:

• Times of India: "Punjab National Bank: A Robust Financial Performance"
• Punjab National Bank: Annual Report 2020
• Reserve Bank of India: Statistical Tables Relating to Banks in India, 2020