Punjab & Sind Bank Q4 FY2023 Concall Summary

Key Takeaways

• Profitability surged on recoveries: Net profit rose 32% YoY in Q4, with operating profit up 69%, driven by a ₹404 crore recovery from written-off accounts and a 49% QoQ jump in core fee income.
• Asset quality improved sharply: Gross NPA fell 139 bps QoQ to 6.97%, the provision coverage ratio strengthened to 89.06%, and early-bucket stress in SMA 1 and 2 accounts nearly halved.
• NIM took a one-off hit: Yield on advances dropped ~25 bps QoQ due to a ₹72 crore interest reversal from a seasonal spike in agriculture slippages; management believes underlying NIM was closer to 2.97% for the year.
• The CASA constraint is structural: A low CASA ratio of 33–34% forces a trade-off: aggressive corporate lending requires bulk deposits that compress margins, so the bank is deliberately moderating growth while it rebuilds a stable retail liability base.
• What to watch next quarter: Whether the targeted ₹1,500 crore in fresh recoveries materializes, the pace of the fintech partnership rollout, and any stabilization in the agriculture portfolio after the Q4 cleanup.

The Recovery-Fueled Profit Jump

• Operating profit engine: The 69% QoQ surge in operating profit was powered by two large, lumpy items: a ₹404 crore recovery from written-off accounts and a 49% sequential jump in core fee income. Management believes recoveries in written-off accounts are sustainable for the current year and has set an internal target of ₹500 crore.
• Negative credit cost: The bank reported a negative credit cost for Q4 because of provision write-backs, which mathematically flattered the bottom line. Management acknowledged this but argued that operating profits also benefited from genuine recovery momentum, not just accounting reversals.
• Core fee income ambition: The bank intends to triple core fee income to ₹100 crore, leaning on new partnerships with SBI Cards for credit cards and Bajaj Allianz for insurance. Management expects a "significant leap frogging" in fee income during FY24.
• Treasury drag reversing: Treasury income was a negative ₹14 crore due to ₹116 crore in MTM provisions. With yields now becoming favorable, management expects a write-back and a much stronger contribution in the current year.

Swarup Kumar Saha: "It is better to be conscious of the dynamics of the ecosystem that happens. It is while we can be very aggressive in giving a guidance but you know, suddenly some news happens, as it happened one airline news came into the picture suddenly and there was a ruffle in the market."

The CASA Trap and the Growth Trade-Off

• The structural bind: The bank's CASA ratio sits at 33–34%, well below peers who enjoy 55%. Savings and current account balances are shifting into higher-cost retail term deposits as customers chase rates, making low-cost resources the bank's single biggest challenge.
• The growth consequence: Management was explicit that it cannot grow corporate lending aggressively at 30% without resorting to bulk deposits, which would be a "double whammy" for margins. The bank will not grow aggressively without a stable retail or CASA base behind it.
• Deposit-credit gap to persist: Deposit growth was a muted 7.73%, partly because the bank is deliberately reducing its bulk deposit share from 27–28% to below 25%. Management expects a 6–7% gap between credit and deposit growth to continue for another one to two years while the retail liability franchise is rebuilt.
• The fix is slow-burn: The bank is targeting institutional CASA, salary accounts, and NRI outreach programs to diversify its deposit base. SOPs have been placed, but these are multi-year initiatives with no quick payoff.

Swarup Kumar Saha: "If I need to do corporate lending in the aggressive way and grow at 30%, I cannot mobilize CASA at that rate at this point of time. So, if I have to do that, I have to really go into bulk resources, which again, is a double whammy for me."

Asset Quality: Cleaning Up the Back Book

• The headline improvement: Gross NPA improved 139 bps QoQ to 6.97%, and the provision coverage ratio climbed to 89.06%. SMA 1 and 2 accounts above ₹5 crore fell from ₹756 crore to ₹446 crore, signaling reduced forward stress.
• The Q4 agriculture spike: Slippages jumped from ₹243 crore in Q3 to ₹448 crore in Q4, with ₹231 crore coming from the agriculture segment alone. Management characterized this as a deliberate cleanup, noting a similar pattern in March 2022 (₹433 crore), and does not foresee a repeat in the coming year.
• Credit profile migration: The share of BBB-and-above rated accounts rose to 56.72%, AAA-rated accounts moved from 23.13% to 26.27%, and the NBFC portfolio is now 99.53% rated A and above.
• Covid book behaving: Delinquency on the Covid-restructured portfolio is just 1.4%, and the trajectory remains on track. Buffer provisions of ₹570 crore created in Q1 and Q2 are being utilized as the bank moves forward.
• PCR strategy is conservative: Management wants to hold PCR above 90% for at least one year and let big-ticket resolutions, including SREI, play out before deciding how to utilize the buffer. The stated preference is a "combo approach" rather than maximizing ROA at the expense of PCR.

Swarup Kumar Saha: "So for the time being we feel that instead of working too much on my ROA, we'd like to give a positive guidance of that but to go overboard and increase my ROA and not increasing my PCR, will also not be fair at this point of time, so we'll keep a combo approach on this."

The Digital and Partnership Pivot

• Fintech RFP in final stages: An RFP for fintech collaboration has been floated and is expected to culminate shortly, with a host of fintechs to be onboarded. The goal is to gain insight into underwriting and customer acquisition capabilities the bank currently lacks.
• Digital traction building: The savings account opening run rate improved from 1.5 to 2.75 per branch per day, the mobile app rating reached 4.2 on both app stores, and digital transactions now account for 84% of total transactions excluding ATMs. WhatsApp banking, wearable banking, and tab banking are all described as launching "very shortly."
• Co-lending scaling fast: The co-lending book has grown from one partner to more than six, with the portfolio reaching ₹945 crore and a target of ₹2,500–3,000 crore for the current year. Management highlighted that the portfolio currently has zero SMA 1 accounts, calling it "very safe."
• Pre-approved personal loans go digital: A 3-click model on the mobile app now serves existing salary and pension account holders, with plans to expand to non-customers with high CIBIL scores and government employees. The target is to grow the book from ₹145 crore to ₹750–1,000 crore.
• Technology investment underway: A ₹250 crore investment in upgrading to Finacle 10x is expected to complete by September, after which the bank will plan its next 3–5 year technology roadmap. Management declined to quantify reskilling investment, saying it needs to understand the new system first.

Ram Jass Yadav: "So during this year we could build up the co-lending book of around Rs.950 plus crore and we are expecting Rs.2000 crore plus and this is a very safe in the sense that presently we don't have any SMA 1 in the co-lending portfolio."

Organizational Restructuring and the People Bet

• Structural overhaul: The bank has created a separate vertical for customer acquisition, a separate vertical for fee income growth, and a back office for small-value segments to drive specialization. The sourcing and sanction functions in MSME lending have been segregated, a change that is about eight months old.
• HR transformation: Every staff member has been profiled and grouped into skill families. Lateral hires include a Chief Risk Officer from State Bank of India. Top executives are being sent to IIMs for leadership development, and a training advisory committee has been revamped with external experts.
• Branch and BC expansion: Twenty-eight branches were opened since April 2022, taking the total to 1,553, with another 40 planned for the current year. The bank also plans to onboard around 2,000 corporate business correspondents in the first half.
• The leapfrog framing: Management repeatedly used the phrase "leap frogging can happen anytime" once the base becomes healthier, pointing to simultaneous work across HR, technology, products, and processes. The tone was aspirational rather than committed to a specific timeline.

Swarup Kumar Saha: "The foundations need to be very strong whether it's on the HR side, whether it's on the technology side, whether it's on the product side, whether it is on my processes side, all the areas need to be looked into separately. One is complementary to the other, it cannot go in one direction."

Guidance & Commitments

Key Metrics