Equity Analysis

Highlights:

• The bank has posted strong domestic deposits growth of 9.4% end December 2019 over December 2019, indicating at no dependence on deposit interest rates.
• The CASA deposits have moved up 10.2%, while domestic CASA ratio has improved to 43.74% end December 2019.
• The domestic loan book of the bank has been flat at end December 2019 over December 2018, which has been impacted due to unutilized sanction limits and tough competition on pricing. The bank has unutilized sanctions worth Rs 40000-50000 crore.
• The retail loan book of the bank grew at healthy pace of 14% with strong 20% growth in housing loans.
• The bank expects its loan growth to improve to 4% by end FY2020 and aims for 8-10% credit growth in FY2021.
• The bank has received capital infusion of Rs 16091 crore from the government to take care of capital requirement of the merged entity. CRAR as per Basel III improved to 14.04% in December 2019 from 10.52% in December 2018.
• The bank has room available to raise AT1 capital, which would be utilized by March 2020. The bank may consider market capital raising later.
• The domestic Net Interest Margin (NIM) stood at 2.36% in Q3FY2020, which is lower than the normal level of 2.65-2.75% due to higher interest income reversals. The bank expects interest income reversals to remain higher for next couple of quarters.
• The fresh slippage of advances remained elevated at Rs 6783 crore in Q3FY2020. However, the fresh slippages were largely contributed by agriculture at Rs 2100 crore and MSME at Rs 1400 crore. The corporate slippages stood at Rs 3000 crore, of which Rs 1188 crore related to DHFL and rest of corporate slippages were small accounts.
• The bank expects the stress in the agriculture and MSME segment to continue and slippages to be higher for next couple of quarters.
• The restructuring of MSME loans stood at Rs 1800 crore in Q3FY2020. As per the bank, the slippages rate for the restructured MSME loan book is 40-50%.
• The bank has recorded strong recoveries and upgradations of bad debt in Q3FY2020, while it expects strong recoveries for next couple of quarters.
• The bank has witnessed recoveries of Rs 2100 crore from the account of Essar Steel in Q3FY2020.
• The bank is expecting NPA recoveries or resolution for 17 accounts under NCLT amounting to Rs 8800 crore in Q4FY2020. The main accounts include Bhushan Power with exposure of Rs 3781 crore other major couple of accounts - Aircel and Dishnet Wireless with exposure of Rs 2863 crore. This resolution of NCLT account is expected to lead to recoveries of Rs 2700 crore in Q4FY2020.
• The banks watch list of stressed account stands at Rs 2900 crore in addition to retail, agriculture and MSME segment watch list of Rs 2000 crore.
• The bank has witnessed net loss in Q3FY2020, mainly due to provisioning divergence of Rs 2091 crore for FY2019 and merger related harmonization provisions of Rs 1500 crore.
• The percentage share of transactions through Alternate Delivery Channels increased to 71.2% in December 2019 from 65.1% in December 2018.
• The bank has committed to fully support PNB Housing Finance and its shareholding would be maintained above 26%.
• With regards to merger of Oriental Bank of Commerce and United Bank of India, the bank is awaiting the gazette notification on merger, while the merger is expected to be effective from 01 April 2020. Currently, the pre-merger work is progress. Three bank had appointed 34-commitees for standardization and harmonization of procedures, which have submitted their reports. Ernst & Young (E&Y) is consultant for the merger.
• The bank expects the entire process of merger to complete over next 9-12 months.

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