PNB’s 20% loan accounts had payment overdue till December ’20

“The differences are wider if we include the stock of NPAs as well. The differences in NPAs in retail, housing and auto loans points towards a weaker credit profile for PNB compared to SBI/BoB,” KIE said in a note on Tuesday.

Punjab National Bank’s (PNB) ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020. An offer document issued by the bank showed that the share of special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020 from 2.74% as on September 30, 2020.

To be sure, the SMA category of loans as of December 31, 2020 also includes loans which were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020. These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

The stress on PNB’s book was most evident in the micro, small and medium enterprises (MSME) category, where 2.89% of domestic advances were classified as SMA 2. Trailing it closely was the corporate sector, where 2.72% of loans were overdue between 61 and 90 days.

Similar signs of incipient stress were earlier observed in a Bank of Baroda (BoB) offer document, which showed that the bank’s SMA ratio surged to 21.57% as on December 31, 2020 from 8% on March 31, 2020. However, PNB’s situation could be a little more worrying than that of BoB, considering that its gross NPA ratio stood at 12.99% at the end of Q3FY21, as against the latter’s 8.48%.

Analysts at Kotak Institutional Equities (KIE) observed that while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. While there is little difference between the two in the corporate segment, wide gaps emerge between the two banks in the SMA-2 profile across retail (11% for PNB vs 6% for BoB), MSME (16% for PNB vs 9% for BoB) and agriculture (8% for PNB vs 3% for BoB).

“The differences are wider if we include the stock of NPAs as well. The differences in NPAs in retail, housing and auto loans points towards a weaker credit profile for PNB compared to SBI/BoB,” KIE said in a note on Tuesday.

The Reserve Bank of India (RBI) has earlier warned about an impending rise in system bad assets. Loan losses in the banking sector, as measured by the gross NPA ratio, could nearly double to 13.5% by September 2021 in a baseline scenario, and to as high as 14.8% in a severe-stress scenario resulting from the pandemic, the regulator had said in the December 2020 edition of its financial stability report (FSR).

There are fresh concerns on the state of credit quality in the financial system in light of the ongoing second wave of Covid. According to KIE, the current cycle is unlikely to be as painful as the corporate NPA cycle. At the same time, recovery in growth and profitability is set to be deferred as a consequence of the second wave.