Punjab & Sind Bank Q1 FY2024 Concall Summary

Key Takeaways

• Profit hit by one account and wage costs: Net profit fell as the bank absorbed a ₹57 crore wage provision and ageing provisions on a single mid-corporate account that slipped into NPA, pulling the cost-to-income ratio up to 72%.
• SMA 2 spike is technical, not systemic: SMA 2 jumped from ₹107 crore to ₹310 crore almost entirely because a state-guaranteed account missed a June 30 inflow by 3-4 days; management signalled no credit concern.
• Guidance is front-footed on recoveries and margins: The bank targets ₹1,500 crore+ in recoveries, a NIM lift from 2.63% to at least 2.90%, and gross NPA below 6%, all while upgrading its core banking platform.
• CASA rebuild is a multi-quarter project: CASA ratio declined in line with the industry, and the bank is betting on a new back office and tab-based acquisition model, with vendor onboarding targeted for Q3 and completion by Q4.
• What to watch next quarter: Whether the ₹10,000 crore sanctions pipeline converts into advances growth of 13-14%, any further slippage from the restructured book, and progress on the Finacle 10 upgrade timeline.

Profitability & Margins

• Wage bill hit the cost ratio: The cost-to-income ratio rose to 72% after a ₹57 crore provision for wage revisions was booked in Q1, an item absent in the year-ago quarter.
• One account drove the profit dip: The net profit decline is attributed to additional provisions on a single mid-corporate restructured account that slipped into NPA, plus some ageing provisions that were pre-loaded into Q1 rather than Q2.
• Treasury provided a tailwind: Treasury income jumped to ₹52 crore from ₹7 crore in the previous quarter, supported by favourable market developments and a larger domestic investment portfolio of ₹49,000 crore.
• NIM ambition rests on mix and recoveries: The bank guided for NIM to improve from 2.63% to at least 2.90%, with credit cost expected to stay below 1% and the slippage ratio below 1.25%.

Saha: "If you see, the inventory of the NPA gets drastically reduced. We had good recoveries last year and some of that happened in Q4 and we had overall recovery and upgradation of over Rs.2100 crore last year. So we have given the guidance taking these factors into account and the fact the inventory of big accounts is getting reduced."

Asset Quality

• Net NPA rose on a single D-2 slip: Gross NPA declined both in absolute terms and as a percentage, but net NPA increased because one mid-corporate restructured account was classified from an earlier date as D-2. Excluding that account, slippages of ₹450 crore (net ~₹350 crore) were described as industry-aligned.
• SMA 2 spike is a timing issue: The ₹310 crore SMA 2 pool includes a ~₹270 crore state government account backed by a state guarantee; a 3-4 day delay in fund inflow after June 30 caused the technical classification.
• Restructured book is shrinking but still carries risk: The restructured book reduced from ₹3,322 crore in March 2022 to ₹2,676 crore as of June 2023, with slippages running at 8.25% from restructured accounts and 2.31% from the GCL segment.
• Provision coverage is set to rise: The bank aims to lift PCR to around 90%, and disclosed approximately ₹150 crore as a buffer beyond standard advances as per regulatory requirements.
• Sub-judice account is provisioned and watched: A ₹91.33 crore account under Delhi High Court order carries a 40% provision; management is preparing for outcomes including a potential NPA declaration depending on the court's decision.

Saha: "We have an account which is sub-judice in the Delhi High Court. We have allocated a sufficient 40% provision for this account and we are actively monitoring the situation. Since it is subjudice, I'm unable to provide more details at this time. However, we are preparing for various outcomes, including the potential declaration of this account as NPA, based on the court's decision."

Credit Growth & Pipeline

• Corporate growth is deliberately slow: The bank has been selective in corporate lending, a strategic choice that has improved the credit profile: AAA and AA rated accounts rose, and for NBFCs, AAA rated accounts moved from 58.47% to 66.47% with total A and above reaching 99.90%.
• RAM segment is the growth engine: MSME and core retail drove advances, with home loans up 14.68%, vehicle loans up 17.76%, and gold loans up 43%; agriculture grew only marginally at 2.72%.
• A ₹10,000 crore pipeline backs the guidance: Management stated the bank holds over ₹10,000 crore in sanctions and approvals, positioning it to meet or exceed the 13-14% advances growth target for the year.
• Co-lending is scaling: The co-lending portfolio has already reached ₹1,000 crore, with partners added across both Priority and Non-Priority sectors, and further expansion planned across MSME and retail.
• NBFC book is shrinking but de-risking: Overall outstanding to private NBFCs decreased from ₹3,404 crore to ₹2,968 crore, while the share of A and above rated loans in the total NBFC book rose to 99.90%.

Saha: "Our credit profile is strengthening and we are managing risk prudently. While credit growth may fluctuate between quarters due to various factors, we possess a robust pipeline of sanctions and approvals, amounting to over Rs.10,000 crore which will not only take care of our future credit growth of 13%-14% but also surpass it."

Deposits & CASA

• CASA ratio fell with the industry tide: The CASA ratio declined, a move management framed as consistent with a 3-4% industry-wide drop across banks; current and savings account components are still growing in line with the industry.
• Retail term deposits are turning a corner: After struggling to attract retail term deposits in FY22 and FY23, the bank said that trend has started to change, though some dependency on bulk deposits remains.
• The CASA fix is a technology play: A two-fold strategy is underway: building a robust back office for regulatory and KYC compliance, and deploying a tab-based banking acquisition mode with tablets, online verifications, and video KYC.
• Deposit growth guided at 8-10%: The bank expects deposit growth of 8-10% for the year, supported by the CASA initiatives and improving retail term deposit momentum.

Saha: "We're in the process of significant technological collaboration to achieve this. We anticipate onboarding vendors in Q3 and customization to allow implementation by Q4. Our target completion date is set for Q4 of the current year."

Technology & Digital Initiatives

• Finacle 10 upgrade is the backbone project: The bank is migrating its core banking platform from Finacle 7 to Finacle 10, a foundational upgrade that underpins several other digital initiatives.
• Digital acquisition tools are being built: Digilocker, WhatsApp Banking, and video KYC are being implemented to improve efficiency in sourcing savings and current accounts.
• Fee-income partnerships are expanding: The bank introduced co-branded credit cards with a positive response, established bancassurance partnerships in health and non-life insurance, and is partnering with a fintech firm to enter the mutual fund business with implementation planned for Q4.
• Customer satisfaction measurement is gated by CBS migration: Management acknowledged the importance of assessing customer satisfaction but said it currently lacks the technical collaboration to do so; a mobile app-based facility is planned once the CBS 10 migration and digital transformation are complete.
• Branch and ATM expansion continues: The bank aims to open 50 new branches this year, targeting districts where it currently has no presence, and plans to enhance its ATM network for brand visibility.

Guidance & Commitments

Key Metrics