>PUNJAB NATIONAL BANK: In power sector, the bank’s management indicated that some of the newly commissioned power generation companies

■ On CASA deposit front, the bank’s management faces difficulty in maintaining high level of 35% CASA due to interest rate gaps in deposits and stiff competition.
■ On credit book expansion plan, PNB’s management indicated credit growth of 100-200bps higher growth than the industry; the bank awaits clarity on monetary policy and Union Budget before finalizing internal target for credit growth in FY13.
■ The bank’s management expects NIM of 3.75%-3.8% in FY12; in 9MFY12, the bank recorded NIM of 3.85%. In FY13, margin is expected to moderate slightly. We also factor in 11bps decline in margin in FY13 due to faster drift in yield on assets in declining interest rate scenario. Though, cut in CRR would aid margin slightly.
■ On NPA front, PNB’s management expects GNPA ratio to inch up in next 2 quarters mainly due to high slippages and lesser credit growth. As on end-December’11, the bank had GNPA ratio of 2.42%.

■ On Air-India loan restructuring front, banking sector total working capital loans of ` 225 bn is going for restructuring before end-March’12. Part of loans (of ` 85bn) would be converted into bonds with non-SLR status but with central government backing; the bond paper would carry coupon rate of 9.25% and with zero risk-weight. Of the total exposure, banks would take NPV losses of 10-12% (of almost ` 23bn). PNB exposure to Air-India is Rs 21bn and the bank management expects to take NPV hit of ` 500-1000mn
in Q4FY12 itself. Banks would be better off with replacement of loans with such bond paper. The NPV hit of 10-12% would not have any significant impact on the banks’ profitability.

■ In power sector, the bank’s management indicated that some of the newly commissioned power generation companies might not be in a position to fully pass-on their incremental higher cost of production in accordance with agreements they have entered into with power purchasers. This would reflect into adverse impact on their profitability.

On core operation front, the bank’s performance would remain robust and the bank would accrue benefits of declining interest rate in form of capital gains and MTM write-backs. We maintain our positive stance on the stock.

RISH TRADER