Punjab & Sind Bank Q3 FY2024 Concall Summary

Key Takeaways

• NIM improved 21 bps QoQ to 2.54% as yield on advances rose faster than cost of deposits, but net profit halved on a one-time wage provision.
• Credit growth deliberately muted at 7.48% because management refuses to lend below its own cost of deposit, prioritizing margin protection over volume in a rate-war market.
• A ₹150 crore wage-revision provision drove the profit decline and pushed the cost-to-income ratio to 75%; the underlying ratio, excluding this exceptional item, was approximately 65%.
• Slippages hit a four-quarter low of ₹228 crore and the SMA-2 book above ₹5 crore halved, signaling asset-quality discipline even as the bank works through legacy resolutions like SREI.
• What to watch next quarter: Whether the ₹350–400 crore NCLT recovery materializes, the trajectory of the CD ratio toward the 71–72% target, and any concrete announcement on capital raising quantum and timing.

Margin & Profitability Mechanics

• NIM walk: Yield on advances rose 29 bps while the incremental cost of deposits moved only 3 bps, producing a 21 bps sequential NIM improvement to 2.54%. The bank wants to hold NIM in the 2.50–2.55% range.
• NII contracted 8.20% YoY despite the sequential improvement, pressured by migration of low-cost CASA into retail term deposits and a price war in the credit market that the bank chose not to join.
• CASA ratio improved 158 bps QoQ to 32.77% even amid the industry-wide shift toward term deposits, a sign that liability-franchise building is gaining traction.
• Cost-to-income ratio at 75% is distorted by the ₹150 crore wage provision; management pegged the normalized ratio at roughly 65.20% and stated the exceptional item will not recur at that scale in Q4 or the next financial year.
• Treasury income halved during the quarter because of security redemptions and the accounting treatment of NPA upgrades that moved provisions above the operating line, compressing operating profit. Management expects treasury to recover from Q4 onward.

Saha: "As of now, our capital adequacy at 16.13% is still very healthy and comfortable. So, we will wait for the opportune time but we will announce it as soon as we decide on the quantum."

Credit Strategy: Margin Protection Over Volume

• Advances grew only 7.48% because management made a deliberate call to avoid lending at rates below its own cost of deposit, a practice it observes competitors pursuing. The bank lacks the legacy retail-term-deposit and CASA base to fund aggressive credit growth profitably.
• Corporate book growth decelerated sharply from 12.81% to 3.25%, while the RAM segments (retail 15.54%, MSME 12.84%, agriculture 6.12%) became the growth engine. The bank targets a RAM mix of 53–54% by March and roughly 60% next financial year.
• CD ratio target of 71–72% by March signals room for some expansion from current levels, but only within the discipline of revenue-generating assets that clear the cost-of-deposit hurdle.
• Rate-cut expectation: Management personally expects the first cut around Q1 or Q2 (June/September), which would immediately reprice the 46% of the loan book linked to EBLR on a T+1 basis.

Saha: "The markets are lending at much below the cost of deposit that we are mobilizing at this point of time. So that is not remunerative at all and I don't have that legacy strength on my books, on my retail term deposit, on my CASA, which can augment that aggressive credit growth, that is happening in the industry."

Asset Quality & Provisioning

• Fresh slippages of ₹228 crore were the lowest in four quarters, and the nine-month slippage ratio of 1% remains inside the full-year guidance of below 1.25%.
• SMA-2 book above ₹5 crore contracted from ₹407 crore to ₹201 crore, reducing the near-term stress pipeline.
• Provision spike explained: The ₹416 crore gross provision (net ₹96 crore after ₹320 crore in NPA reversals) was driven largely by the SREI resolution, where debt was converted to equity and moved from the NPA book to the treasury book under 100% provision. This was a one-off resolution event.
• SREI mechanics: NARCL purchased SREI; the bank received upfront cash, security receipts, OCDs and NCDs. The SR is not government-guaranteed because the resolution happened through NARCL as an ARC rather than through NCLT, so it carries full provision.
• Provision coverage ratio stands with a target to scale toward 89%.
• Recovery expectation: Management anticipates ₹350–400 crore in recoveries from NCLT or written-off cases during the March quarter.

Technology & Operating Infrastructure

• Finacle 10 upgrade completed and stabilized after a 2–3 month handholding period. The new core banking version enables API-linked credit underwriting, pre-approved personal, housing and vehicle loans, and digital agriculture and Mudra lending.
• Treasury solution also upgraded recently, which management expects will strengthen overall treasury functioning.
• Technology-enabled products are targeted to be on the ground by September, leveraging the upgraded infrastructure for value-added lending.
• Co-lending expansion: Board approval obtained for non-priority-sector co-lending, adding to the existing priority-sector co-lending capability. The bank is also exploring the direct assignment route but is taking a cautious approach before scaling.

People & Organizational Change

• CXO recruitment completed: Chief Compliance Officer, Chief Financial Officer and Chief Technology Officer hired on external contract and expected to join by April, joining the existing Chief Risk Officer.
• HR transformation launched in January through a reputed external institution, covering succession planning, competency mapping, performance management tools, training programs, and transfers and postings aligned to industry practice. Management expects the entire next financial year to be utilized primarily for HR issues, including lateral moves at key positions and leadership training.

Saha: "We will be bringing out the HR transformation exercise. This will have the performance management tools, the training requirements, the transfers, postings and everything will be based on a latest version of what is happening in the industry."

Guidance & Commitments

Key Metrics