` 750 Cr (out of the rated amount of ` 1500 Cr due to non-utilization)

Transcription

1 Rating Rationale Punjab National Bank 05 th July Brickwork Ratings () assigns rating for Punjab National Bank s proposed fresh issue of Basel III compliant Additional Tier I Bond amounting to ` 3000 Crores, Withdraws rating for the Bank s unutilized Basel III Compliant Additional Tier I Bond amounting to ` 750 Crores (out of the rated ` 1500 Crores) and Reaffirms for the Bank s utilized Basel III Compliant Additional Tier I Bond amounting to ` 2250 Crores and rating for the Bank s Innovative Debt Instrument amounting to ` 700 Crores Particulars Assignment Instruments Proposed Fresh issue of BASEL III -AT-I-Bonds Amount ` 3000 Cr Rating (June ) (Pronounced Double A Plus) Withdrawal Instruments Proposed Fresh issue of BASEL III -AT-I-Bonds Amount ` 750 Cr (out of the rated amount of ` 1500 Cr due to non-utilization) Rating (June ) (Pronounced Double A Plus) Withdrawal The rating for the unutilized portion of the said bonds i.e. Rs.750 Cr (out of the rated amount of Rs.1500 Cr in March ) is being withdrawn at the request of the Bank. Ratings in respect of other rated instruments of Punjab National Bank (PNB) s bonds are as follows: Reaffirmation Instrument Issue Date Raised Rs Cr Interest Rate Maturity Date ISIN O/s rating Innovative Debt Instrument Series V 28-Aug % INE160A09280 ( 1 05 th July

2 Innovative Debt Instrument Series IV 27-Nov % INE160A09314 ( AT- - Series VIII 03-Mar- 1, % INE160A08100 ( AT- - Series IX** 29-Mar % INE160A08118 ( AT- - Series X** 31-Mar % INE160A08126 ( **PNB has raised an amount of Rs.500 Cr and Rs.250 Cr of the rated Basel III AT-1 Bonds of Rs.1500 Cr in March. The rating for the unutilized portion of the said bonds i.e. Rs.750 Cr (out of the rated amount of Rs.1500 Cr) is being withdrawn at the request of the Bank. Rating Brickwork Ratings has assigned the rating of rating with Outlook: Stable for Punjab National Bank s proposed Basel III compliant Additional Tier I Bonds amounting to ` 3000 Crores. Rationale/Description of Key Rating Drivers/Rating sensitivities: Brickwork Ratings have relied on the Punjab National Bank s financial results for FY17, publicly available information and other information/clarifications provided by the Bank. The rating factors in increased Government of India (GOI) s equity stake at 65.03% as of March 31, (FY16: 62.10%) and its continued support to the Bank, size of the Bank and its wide branch network, higher CASA deposit percentage compared to peers, profits declared in all the four quarters in FY17 after losses in FY16, and comfortable capital adequacy level. However, the ratings is constrained by continuing deterioration in asset quality as reflected in high GNPA and Impaired Assets ratios, high provisioning costs, and its impact on the overall performance of the bank. The Bank is proposing to issue Basel III Compliant Additional Tier I Bond aggregating to ` 3,000 Cr. Terms of this proposed bond is expected to be in line with the Bank s similar existing Bonds. The key terms of the existing bonds are as follows: The bonds are perpetual in nature, with coupon servicing at annual intervals. The bonds are subject to the guidelines/regulations of the Reserve Bank of India (RBI) applicable to Additional Tier I Basel III compliant bonds issued by banks th July

3 The following, inter alia, are some of the key features of this instrument: 1. This instrument is superior to the claims of investors in equity/common shares and perpetual noncumulative preference shares. It is subordinated to the claims of the depositors, general creditors and other subordinated debt bonds issued by the Bank, other than any subordinated debt qualifying as Additional Tier 1 Capital (as defined in the Basel III Guidelines) of the Bank. 2. It is neither secured nor covered by a guarantee of the issuer nor related entity or other arrangement that legally or economically enhances the seniority of the claims vis-à-vis bank creditors. 3. It does not have any Put option and the Call options are subject to the regulations specified by RBI and as also specified in the draft term sheet of the issue. The features with regards to discretionary nature of coupons, loss absorption, point of non-viability, events of default, etc. are detailed in the term of the issue and as per extant guidelines of RBI. Rating Outlook: Stable believes Punjab National Bank s Business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be to 'Negative' if the asset quality deteriorates more than estimates, and profitability declines substantially due to higher provisioning costs, impacting capital adequacy. About the Company Background: Punjab National Bank (PNB) is one of the large public sector banks in India with a strong presence in North and Central India. GOI currently holds 65.03% of the equity capital. The domestic branch network of the Bank stood at 6,937 and the ATM network at 10,681 as on March 31,. Management: Shri Sunil Mehta was appointed as the Chairman of the Bank on February 17,. Shri Sunil Mehta (a different individual) has succeeded Smt. Usha Ananthasubramanian as the Managing Director and CEO of the Bank since May 07,. Shri K V Brahmaji Rao (since Jan 14), Dr Ram S Sangapure (since Mar 14) and Shri Sanjiv Sharan (since Sep 16) are the Executive Directors of the Bank. Financial Performance Business Performance: Total business of the Bank registered an increase of 7.85% from ` 965,377 Cr as on March 31, 2016 to ` 1,041,197 Cr as on March 31,. Deposits have increased by 12.41% from ` 553,051 Cr to ` 621,704 Cr as on March 31,. CASA ratio has improved from 41.63% to 46.00%, highest amongst all the peer public sector banks. Net advances have increased marginally by 1.74% from ` 412,326 Cr in FY16 to ` 419,493 Cr as on March 31,. The share of small ticket advances as a percentage of domestic advances have grown from 54.8% in FY16 to 56.6% in 9MFY17. Of the global gross advances of ` 441,751 Cr in FY17, the Bank registered a higher growth in loans to Retail by 14.2% followed by Agriculture & allied by 6.9% while a dip in exposure to large corporates was to the extent of 3 05 th July

4 2.1%, compared to FY16 figures. Fund-based Exposure to Infrastructure sector stood at 16.2% of its domestic advances. Earnings Quality: Total Net Interest Income for the Bank during FY17 was at ` 14,993 Cr (` 15,312 Cr in FY16). Net Interest margin, though lower at 2.38% (FY16: 2.60%), is better amongst peer public sector banks. Non-interest income has seen considerable growth from ` 6,877 Cr in FY16 to ` 8,951 Cr in FY17. The Bank s provisions have significantly reduced from ` 15,313 Cr for FY16 to ` 13,240 Cr in FY17. The Bank which incurred substantial loss of ` 5,367 Cr in Q4FY16 and thereby a cumulative loss of ` 3,974 Cr for FY16, has shown profits in all four quarters of FY17. The net profits for FY17 stood at ` 1,325 Cr. Provision costs and non-interest income remain the key monitorables. Asset Quality: In FY17, the Bank s Gross NPAs increased from ` 55,818 Cr in FY16 to ` 55,370 Cr. During FY17, Cash recovery and upgradation was to the tune of ` 13,658 Cr, while fresh slippages were ` 22,415 Cr. GNPA ratio for PNB decreased to 12.53% (FY16:12.90%) and NNPA ratio to 7.81% (FY16: 8.61%) respectively. Further, Bank s standard restructured advances declined to ` 11,932 Cr (FY16: ` 20,144 Cr). Potential slippages from the restructured portfolio would be a key rating sensitivity. Provision Coverage Ratio has improved to 58.57% (51.06% in FY16). Capital Adequacy: As on March 31,, the Bank s total CRAR as per BASEL III guidelines stands at 11.66% (11.28% in FY16) out of which Tier I capital adequacy ratio stood at 8.91% (8.41% in FY16) with CET-1 at 7.87% (7.87%in FY16). The GOI has infused capital to the tune of ` 2112 Cr in the Bank during FY17. In terms of guidelines, the regulatory CRAR requirement for March 31, is 10.25% (including capital conservation buffer requirement)-, Tier I is 8.25% and CET-1 is 6.75% (including capital conservation buffer requirement of 1.250%) respectively. In terms of guidelines, the regulatory CRAR requirement for March 31, 2018 is % (including capital conservation buffer requirement)-, Tier I is 8.875% and CET-1 is 7.375% (including capital conservation buffer requirement of 2.025%) respectively th July

5 KEY Parameters Rs Cr Total Deposits 501, , ,704 Deposit Growth (in %) 11.07% 10.31% 12.41% Net Advances 380, , ,493 Loans Growth (%) 8.95% 8.35% 1.74% Total Business 881, ,377 1,041,197 Business Growth (%) 10.15% 9.46% 7.85% CASA Ratio % 40.57% 41.63% 46.00% Profitability Ratios (%) RoE (%) 8.12% Negative 3.52% RoA (%) 0.53% Negative 0.19% NIM (%) 3.15% 2.60% 2.38% Net Interest Income (NII) Non-Interest Income Operating Profits Provisions PAT Cost to Income Ratio (%) 46.74% 46.79% 41.57% Asset Liability Profile (%) Loans/Deposit Ratio 75.90% 74.55% 67.47% Gross NPAs to Advances 6.55% 12.90% 12.53% Net NPAs to Advances 4.06% 8.61% 7.81% Restructured Portfolio as a % of Gross Advances 9.76% 4.65% 2.70% Gross NPA% + Restructured (Stressed Advances) 16.31% 17.55% 15.23% Provision Coverage Ratio 58.21% 51.06% 58.57% CRAR 12.21% 11.28% 11.66% Tier % 8.41% 8.91% CET I 8.74% 7.87% 7.87% AT-I 0.56% 0.54% 1.04% Tier II 2.91% 2.87% 2.75% Book Value GOI stake 59.86% 62.10% 65.03% 5 05 th July

6 Rating History for the last three years (including withdrawn/suspended ratings) Sl. N o. Instrument/ Facility Current Rating () Innovative Debt Instrument Innovative Debt Instrument Proposed Proposed Type Long term Amou nt (Rs Crs) June Withdra wn 23 March 03 February Negative to Negative to Rating History 11 March 2016 Stable to Negative) Stable to Negative) NA 02 September 2015 NA NA NA NA NA NA NA NA NA NA NA 6 05 th July

7 Hyperlink/Reference to applicable Criteria General Criteria Approach to Financial Ratios Banks and Financial Institutions Analytical Contacts Manjunatha MSR Director - Ratings analyst@brickworkratings.com Media media@brickworkratings.com Relationship Contact bd@brickworkratings.com Phone: For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by. alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: complexity levels are meant for educating investors. The complexity levels are available at Investors queries can be sent to info@brickworkratings.com. About Brickwork Ratings Brickwork Ratings (), a SEBI registered Credit Rating Agency, has also been accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a Nationalized Bank, as its promoter and strategic partner. has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations. has rated debt instruments/bonds/bank loans, securitized paper of over 9,30,000 Cr. In addition, has rated about 5000 MSMEs. Also, Fixed Deposits and Commercial Papers etc. worth over 19,700 Cr have been rated. Brickwork has a major presence in rating of nearly 100 cities. DISCLAIMER Brickwork Ratings () has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented as is without any express or implied warranty of any kind. does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and shall not be liable for any losses incurred by users from any use of this report or its contents. has the right to change, suspend or withdraw the ratings at any time for any reasons th July