In a recent report by Business standard, Sunil Mehta, MD and CEO of PNB has told reporters that Punjab National Bank is confident on recovering losses from the recent Rs 130 billion scam related to Nirav Modi and Mehul Choksi group of companies, especially after some relaxations provided by the Reserve Bank of India (RBI). As I have already read the report, I have to say that PNB stock is really available at a very good price. Management is very confident on its lending capacity and expects recovery of looses from recent Rs 130 billion scam soon.
Here is the whole summery of recent report of Business Standard.
MD and CEO of PNB- “The RBI has reduced provisioning requirement from 50 per cent to 40 per cent for accounts related to National Company Law Tribunal (NCLT) cases. For that matter, even our bank has an exposure of roughly Rs 110 billion in the first list of nine accounts and Rs 65 billion in the second list of 20 accounts. We have already made a provisioning of 50 per cent in those cases and if we get a write back of 10 per cent, we will roughly get Rs 18 billion out of the provisioning requirements. Even for the fraud, RBI has given us some forbearance so we can split it out into four quarters so that will not put a strain on my capital requirements.
The most important factor is during the current financial year itself, we have mobilised capital of Rs 120 billion out of which Rs 50 billion is through QIP [qualified institutional placement], Rs 30 billion from sale of non-core assets and Rs 54.7 billion through capital infusion from the government. Even if we take the entire hit, we are back by six months. So whatsoever we have mobilised, even if it is consumed in this (fraud), we are back to our old position and it will not impact our ability to further lend.
The bank has a battery of roughly Rs 130 billion-Rs 140 billion worth of non-core assets which we can monetise to meet our capital requirements. So that way, Rs 120 billion we have already mobilised, we have a cushion of another Rs 100 billion available with us that will provide us enough ability to continue the growth and bounce back in six months.
We will definitely register losses in the March-ended quarter. Our audit is still pending so after it is completed, we can talk more. But credit growth was 9.9 per cent which is better than same period last year but less than the previous quarter and domestic deposit growth stood at 6.2 per cent.”
You can read the full report at Business Standard.
From this report published by Business standards, it is very clear that PNB is going to post losses in Q4. But few things or information that has been stated by MD of PNB are very positive for Investors. Bank has a non-core assets value of more than Rs130 billion which they can use if they get a good value of them. They have also stated that Nirav Modi scam will not affect their operating activities as much as Investors are expecting.
So, only one thing that is going to hurt the Quality of PNB more is high amount of losses which PNB will soon report its its upcoming quarters. However, I think such facts has been already discounted by stock price of PNB. It has loosed almost Rs 15,000 crore market capital which is much bigger than the Scam amount. From the peak price of Rs 230, stock slipped more Rs 130 or 60 percent after PSU Banks recapitalisation announcement. However, once the PNB will start recovering its looses from Nirav Modi scam, we would able to see a recovery in the position of PNB in Banking Sector also.
One more important thing that need to been noted is that Resolutions for many NPAs are now in final stages. Rcom( officially non NPA account ), Bhushan steel etc have already got buyers and are in the final stages of proceeds. Whereas, many other companies having huge amount of debt are also trying to pay the loan in FY19 taken through Domestic banking system. So, it is possible to see some good amount of money inflow coming back in the PSU banks soon.
Although, it may possible that we wouldn’t see levels of Rs 150-160 in PNB in next 2-3 months. But I think for next few weeks or months, stock has clear potential to climb 30-35 percent. So, from current levels of Rs 100, investors and traders have a good chance to hold PNB for short-term.
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