Punjab National Bank posts record loss of Rs 5,367 cr, here is what it needs to do to regain glory

The massive Rs 5,367 crore loss registered by Punjab National Bank (PNB) for the quarter-ended March 31, 2016, the largest ever loss by an Indian bank, has come as a shocker to former chairmen-and-managing-director of the bank.

Two former CMDs of PNB, S S Kohli and S C Gupta, who led the bank for a seven-year period starting 2000, told FeMoney that the extent of loss was beyond their imagination. They suggested the bank should work out a concerted medium-term plan to extricate itself out of the slump.

“I am quite saddened by the state in which PNB is seeing itself. During my period, it was the strongest PSU bank financially,’ Kohli, who headed the bank between 2000 and 2005 said.

Listing out the strength of the bank, he pointed out that when he left office in 2005, PNB had negligible net non-performing assets (NPAs) of 0.12 per cent and gross NPA of 6 per cent. “When I joined the bank net NPA was 8.5 per cent and gross NPA was 16 per cent,” he said.

Kohli said that in 2005, BCG had given first rank to the bank among PSU banks in 12 out of 13 parameters, including all operational parameters. “The only parameter in which we were not ranked number one was establishment expenses which was mainly due to the merger of the erstwhile New Bank of India with PNB,” he said.

“PNB should fix accountability and work towards a medium-term plan to regain the past glory,” Kohli said.

Reliance Securities expects PNB’s asset quality stress to continue along with lofty credit cost in next 5-6 quarters, which would keep return on assets (RoAs) depressed at 0.1-0.2 per cent and return on equity (RoEs) at 1-5 per cent over FY16-18E. Sharp rise in incremental stressed asset formation in FY16 along with subdued operating performance will continue to dent PNB’s performance, it said.

PNB’s net loss of Rs 5,367 crore in the quarter-ended March 2016 was due to higher provisioning for bad loans. The bank had posted a net profit of Rs 306.56 crore in the corresponding period of the previous fiscal.

The bank’s provision for non-performing assets (NPAs) rose more than three-fold to Rs 11,380 crore in the fourth quarter compared to Rs 3,281 crore in the same period a year ago.

K R Choksey Institutional Research agrees. “Given the anticipated incremental stress on book coupled with stressed watch-list accounts and capital infusion round the corner, the return ratios are expected to take a huge beating,” the brokerage house has said.

S C Gupta, who led PNB between 2005-2007 said the bank must work out on a 2-year strategy for coming into profits. “As a retired chairman of the bank, the news of the massive losses did hurt. I think the situation can be rectified if the management, along with employees, sit down and work out a definite plan,” he said.

Gupta suggested a detailed analysis of the performance of every branch of the bank. “PNB management should undertake a detailed analysis of branch-wise performance and fix problems in the non-performing branches. Unless a large majority of branches deliver results, things will not improve,” he said, adding that the prescription is applicable to all PSU banks, many of which are in losses. PNB had 6,692 branches on December 21, 2015, the highest among PSU banks.

He also suggested employee morale should be kept high through this slump period. “There has to be employee accountability. Unless there is performance accountability of employees, the health the bank will never improve. Employees should have a sense of belonging to the institution. There should be ownership right down to the lower level,” Gupta said.