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Mixed quarter; Elevated opex drags down earnings

Asset quality improves

* PNB reported a mixed quarter, with an 8% miss in PAT and in-line growth in NII. PAT of INR11.5b was affected by high opex. NII grew 30% YoY to INR94.9b as domestic margin expanded 8bp QoQ to 3.4%. The bank also benefitted from interest on the IT refund of INR8.7b.

* The loan book grew 14% YoY to INR8.3t (in line), driven by healthy traction in retail loans. Deposits grew 12% YoY to INR12.8t (4% beat), led by 7.4% QoQ growth in term deposits.

* Slippages moderated to INR39.9b (2.2% annualized). GNPA/NNPA ratios thus improved by 102bp/58bp QoQ to 8.7%/2.7%. PCR increased 233bp QoQ to 70.8%.

*Total SMA overdue (>INR50m) too moderated to 0.01% of domestic loans.

We increase our earnings estimates by 5%/9% for FY24/25 to factor in low provisions, and project RoA/RoE of 0.6%/8.9% by FY25E. Maintain Neutral.

SMA book moderated to 0.01% of domestic loans; PCR improves to 70.8%

* PNB reported a PAT of INR11.5b (est. INR12.6b), hit by high opex (9% beat). NII grew 30% YoY to INR94.9b (in line) in 4QFY23, led by loan growth of 4% QoQ and 8bp QoQ expansion in domestic margin to 3.4%. For FY23, NII grew 20% YoY to INR344b, while PAT declined 28% YoY to INR25b.

* Other income grew 40% YoY to INR34.2b, led by higher recoveries and FX income even as the bank reported a treasury loss of INR1.9b in 4QFY23 v/s a gain of INR0.1b in 4QFY22. Opex jumped 57% YoY due to a surge in employee expenses as the bank made AS-15 related provisions for wage revision. Thus, the C/I ratio increased to 54.6% (v/s 54.3% in 3QFY23). As a result, PPoP grew 11% YoY to INR58.6b (7% miss). For FY23, PPoP grew 8.5% YoY to INR225b.

* The loan book grew 14% YoY (+3.8% QoQ) to INR8.3t, fueled by healthy traction in the retail segment (up 10% QoQ). MSME/Agri grew 3%/4% QoQ, while the corporate portfolio stood largely flat. Within Retail, Personal loans grew 13.5% QoQ, while Vehicle/Housing rose 28.5%/1.9% QoQ in 4QFY23. ? Deposits grew 12% YoY (+6% QoQ) to INR12.8t, led by 7.4% QoQ growth in term deposits. CASA deposits increased by 4.2% QoQ. Thus, the CASA ratio moderated to 43% from 43.7% in 3QFY23.

* On the asset quality front, slippages moderated 2% QoQ to INR39.9b (2.2% annualized), along with healthy recoveries and upgrades. As a result, GNPA/ NNPA ratios improved 102bp/58bp QoQ to 8.7%/2.7%. PCR increased 233bp QoQ to 70.8%.

* SMA-2 (above INR50m) book moderated 95% QoQ to INR0.82b and stands at 0.01% of domestic loans

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