Punjab & Sind Bank Q2 FY2024 Concall Summary

Key Takeaways

• Profit fell 32% on tax-base effect, not operations: Net profit declined to ₹189 crore, but the drop was driven by an ₹85 crore tax write-back in the prior-year quarter; non-interest income surged 90% on recoveries.
• NIM under sustained liability-side pressure: NIM compressed to 2.32% as cost of deposits rose ~120 bps while yield on advances rose only ~100 bps; management expects further impact in Q3 before MCLR resets help in Q4.
• Growth deliberately sacrificed for returns: The bank is willing to let the corporate book stay flat rather than compete with larger PSUs on rate, and is pivoting toward higher-yielding RAM segments and gold loans.
• Technology upgrade is the unlock, but still stabilizing: The Finacle 7-to-10 migration completed in October; back-end issues persist and digital customer acquisition journeys are still being built, with full stabilization targeted around March 2025.
• What to watch next quarter: Whether the Finacle 10 platform stabilizes enough to begin delivering new lending products and CASA acquisition journeys, and whether the promised Q4 MCLR repricing relief actually materializes.

Profitability & Margins

• Tax-base effect drove the headline profit drop: Net profit fell 31.77% to ₹189 crore, but the prior-year quarter included an ₹85 crore tax write-back; excluding that base effect, the underlying profit trajectory was steadier.
• Non-interest income masked some pressure: Non-interest income grew 90.07%, aided primarily by ₹131 crore in recoveries from written-off accounts; core fee income also grew 28.43% YoY.
• Cost-to-income ratio deteriorated: The ratio rose to ~72% from ~65% last year, driven by ₹25 crore in MTM depreciation, re-pricing of retail term deposits, and migration from CASA to retail term deposits.
• NIM caught between deposit repricing and slow asset repricing: Cost of deposits increased by ~120 bps while yield on advances increased by only ~100 bps, squeezing the spread; management expects some more impact in Q3, with MCLR revision benefits flowing from Q4 onward.
• Treasury a drag, recovery expected next fiscal: MTM depreciation and a prolonged rate-pause environment hurt the treasury book; management expects a rebound from Q1 of the next financial year, which would support a much better performance in FY25.

Saha: "PSUs are asking very low rates which I cannot tell here in the open market but you all know what the demand is from the PSUs in terms of the rate war that is going on in the market. So, we are not there."

Credit Growth & Strategy

• Corporate book deliberately flat: Advances grew only marginally from ₹80,982 crore (March 2023) to ₹81,906 crore (September 2023), with the corporate book essentially flat at ~₹40,386 crore. Management frames this as a conscious choice to prioritize returns over volume.
• The bank cannot and will not compete on rate: As a mid-sized PSU, the bank lacks the market dominance to dictate interest rates to corporates and larger PSU borrowers; management is willing to sacrifice growth if adequate returns are not available.
• Pivot to higher-yielding RAM segments: The strategy is to shift the mix toward retail, agriculture and MSME lending where yields are better, rather than chasing low-return corporate finance.
• Capital-optimized growth in practice: Credit RWA grew at 8.3% versus credit growth of 11.08%, reflecting a deliberate focus on capital-efficient asset deployment.
• Gold loans targeted for 40-45% growth: The bank is targeting aggressive expansion in its gold loan portfolio during the current financial year.

Saha: "There is no point in growing the book, if my cost is not covered in my portfolio. Bring a Bank of our size, we do not have the market dominance to dominate the rate of interest that is being asked for by the corporates and the PSUs."

Asset Quality

• Agriculture slippages elevated on geographic concentration: Slippages in the agriculture segment were higher than last year due to branch concentration in the northern belt; management stated that residual stress in the segment has mostly stabilized or been recognized.
• One mid-size real estate account slipped to SMA 2: An account of ₹106 crore, a housing project under implementation that got stagnated, temporarily moved to SMA 2; production is ongoing and management is confident it will not slip further.
• Slippage recovery cycle is short: Accounts that slipped in the June quarter were recovered aggressively in the September quarter, and some accounts that slipped in September were already recovered in October.
• Full-year slippage target maintained at ~₹900 crore: Management expects to hold slippages at last year's level, with recovery and upgradation targeted at over ₹1,500 crore; some big resolutions are expected in Q3 and Q4.
• Credit cost guided below 1%: The bank intends to continue maintaining credit cost below 1%, consistent with prior guidance.

Technology & Digital Transformation

• Finacle 10 upgrade completed, stabilization underway: The core banking system migration from Finacle 7 to Finacle 10 was completed in October; back-end issues remain but management expects resolution within approximately one month.
• Technology constraints have held back lending innovation: The legacy platform was a bottleneck for developing new lending methods; the upgrade is expected to unlock new capabilities in underwriting, governance and product design.
• Digital customer acquisition still being built: The bank faced constraints on CASA acquisition because mobile app journeys for liability-side customer onboarding were not available; management expects to develop those processes by December or January end.
• Customer wallet share lost to technology gaps: Many customers maintain accounts with the bank but conduct their main business with other banks due to technology constraints; management wants to reverse this dynamic.
• Fintech collaborations advancing: Partnerships with fintechs are at a very advanced stage, with a particular focus on agricultural segments where the bank has been underperforming.
• Business correspondent network scaling rapidly: The bank has increased its BC network to nearly 700 and intends to reach 2,000 by December and 4,000 by March, onboarding under a corporate BC model.
• Full digital transformation timeline points to March 2025: Management indicated that from a digital transformation perspective, the target horizon is March 2025.

Co-Lending & Fee-Based Growth

• Co-lending book expanded to ₹1,500 crore: The bank has scaled its co-lending portfolio and intends to bring it to around ₹3,000 crore by March 2024.
• GST-based lending gaining traction: The bank is providing loans up to ₹5 crore on a cash-flow basis under its GST product, and the product is showing good momentum.
• Pool purchases on hold pending technology setup: The bank is preparing its technology platform for pool purchases but needs more time to complete the setup.

Guidance & Commitments

Key Metrics