Punjab & Sind Bank Q4 FY2024 Concall Summary

Key Takeaways

• Muted growth, deliberate reset: Advances grew just 6.15% as a core banking upgrade and back-office restructuring slowed momentum, but management frames this as building the rails for sustainable growth.
• Profitability rebounded sequentially: Operating profit and net profit rose ~21% QoQ each, though full-year comparisons were dented by a high base of write-backs and DA neutralization costs in the prior Q4.
• Asset quality levers still in hand: GNPA remains above 5%, but the bank has not used technical write-offs for two quarters and sees room to deploy that tool when balance sheet management calls for it.
• Cost-to-income elevated, path laid: The ratio hit 72% for the full year on wage impact; management targets below 60% in two years but declined to commit to the 50-55% an analyst asked about.
• What to watch next quarter: Whether the 10-12% credit growth target for FY25 starts converting, the pace of GNPA reduction toward the sub-5% mark, and any movement on specialist hiring once the code of conduct lifts.

Growth Reset: The Tech Upgrade Trade-Off

• Core banking migration disrupted Q3 and Q4: The technological upgradation of the core banking system in Q3 created a spillover effect that suppressed advances growth to 6.15%, well below the industry.
• Back-office restructuring compounded the drag: Moving the RAM portfolio to a backend processing center and migrating to the Finacle 10 platform in October both required stabilization time, slowing loan origination.
• The payoff is already visible in asset quality: Since implementing the back-office structure for credit, delinquency and SMA levels have fallen to a bare minimum, a lesson learned from the legacy loan book and past credit delivery methods.
• Deposit strategy pivoted to stability: The bank shed 5% of bulk deposits during the year to focus on CASA and retail term deposits, sacrificing some liability-side growth for a more stable funding base.
• Management explicitly accepted slower growth: With a CASA ratio of 31-32% and aggressive interest rate movements, managing LCR became a challenge; the bank chose to rebalance the portfolio efficiently rather than chase industry growth rates.

Swarup Kumar Saha: "It may look that our growth has been muted but we are trying to build up momentum for sustainable growth."

Asset Quality & Recovery

• Agriculture drove the slippage book: Of the ₹370 crore in total slippages, agriculture contributed the largest share at ₹184 crore.
• Recovery outlook is moderating: Only one or two big accounts remain under resolution with NCLT or NARCL, so the recovery opportunity will be somewhat lower than last year.
• Technical write-offs are a conscious choice, not a necessity: The bank has not resorted to technical write-offs for the last two quarters, unlike many peers; management says there is still room on that front and it is a matter of balance sheet management when to take the call to bring GNPA below 5%.
• Recovery targets are quantified: The bank intends to recover ₹500 crore from technical write-off accounts and achieve overall recovery plus upgradation of ₹1,500 crore.
• One industry-wide penalty flagged: An RBI penalty of ₹2 crore (₹1 crore booked this quarter) was imposed across all banks with exposure to a particular state government account; the account remains standard with no default.

Swarup Kumar Saha: "Last two quarters we have not resorted to technical write-offs which many banks normally do. We have also done in the past, but we feel that we still have room on that. So, it's just a matter of balance sheet management when we take the call and bring it to below 5%."

Segment Performance & Portfolio Choices

• Management questions peers' sustainability: With a differential of more than 5-7% between credit and deposit growth at some banks, the MD expressed doubt about whether those growth stories remain sustainable going forward.

Swarup Kumar Saha: "I am very sure with some of the banks having grown very effectively and efficiently, but with a differential of more than 5% to 7% between credit and deposit growth, I'm not very sure whether those growth stories will remain sustainable going forward."

Technology & Infrastructure Build-Out

• ₹800 crore invested in IT over five years: Core banking and treasury solutions have been upgraded; another ₹500 crore is committed over the next three years.
• Data warehouse is the critical long-term project: With a gestation period of 36-48 months, it will eventually enable AI and ML capabilities, but the payoff is years away.
• Multiple digital initiatives are in early stages: Tab banking for customer acquisition, a revamped call center (one-year project), a Forex trade finance module with back-office structures, and a back-office for CASA account opening are all planned or underway.
• PSB UnIC digital app improvements and BC network expansion: Value-added services on the app will be enhanced; the BC network is targeted to grow to 4,000 by March 2025 and 6,000 by 2026.
• New treasury guidelines absorbed: The bank rebalanced its portfolio and shifted part of its securities to the trading book as per the new RBI treasury guidelines effective April 1; management expects a rate cut in the second half of the year to generate income from that shift.

Swarup Kumar Saha: "The transformations or structural changes happen, keeping in mind both these considerations, we need to implement."

Costs, Margins & the Efficiency Path

• Cost-to-income ratio hit 72% for the full year: The wage impact was the primary driver; Q4 alone pulled back below 70%, but management does not treat that as a comfort level.
• Establishment costs expected to ease: Some savings on establishment costs are anticipated in FY25.
• Management declined to commit to a 50-55% range: When an analyst asked if cost-to-income could reach 50-55% in the current tenure, the MD said he does not predict that range and instead offered a below-60% target in two years.
• Project finance provisioning could add ₹150 crore: If the RBI circular on project finance is implemented as drafted, the bank expects an impact of around ₹150 crore for the current year, though some moderation may occur.
• Treasury income upside is contingent on rate cuts: The bank expects a rate cut sooner or later, possibly in the second half of the year, which would generate income from securities shifted to the trading book under the new guidelines.

Swarup Kumar Saha: "I don't predict that range at this point of time, but we surely predict that this will be below 60% in another two years' time."

People, Hiring & Organizational Capacity

• Four CXOs recruited under a new methodology: CFO, CCO, CRO and CTO have been brought in; capacity-building exercises are underway across the organization.
• Specialist hiring is stalled by the code of conduct: Board approvals are in place for recruiting specialized positions at various levels from scale 2 to scale 5, but the bank cannot go to market until the code of conduct ends.
• Treasury and Forex specialists will be recruited: The bank plans to bring in specialists in these areas going forward, though it acknowledged it has not yet reached the level of synergies with foreign brokerage houses or primary dealers that an analyst asked about.
• Defense accounts and fee income verticals strengthened: An advisor has been appointed to procure defense accounts; the fee income vertical has shown good growth for two years.
• Lower tax regime decision deferred: The bank will decide on adopting the lower tax regime based on performance during the year.

Guidance & Commitments

Key Metrics