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Punjab & Sind Bank
Punjab & Sind Bank (PSB), with 926 branches is
predominantly present in North and Central India. Its key
strengths are: a) amongst the lowest NPAs in the PSU space
(GNPA <1%), b) adequate capital (CAR at 13%), c) strong
GoI holding (82% post dilution) and d) healthy returns ratio
(avg RoE/RoA at 22%/1.0%). The geographical
concentration (~78% of loans and deposits both) in North
India including Punjab however has capped its loan-deposit
ratio. With 9% YTD growth in its loan book, the bank is
focusing on increasing the share of Retail and MSME
portfolios. The capital restructuring done in late 2008 has
enhanced book value of the bank to Rs111, translating into a
valuation of 1.0x-1.1x trailing P/BV at the IPO price band.
Strong presence in agri-rich Punjab
PSB has established a rich presence in the agri-dominated state of
Punjab. A lead bank in three districts of Punjab (Ludhiana, Faridkot
and Moga), PSB operates through 402 branches. Cumulatively,
Punjab accounts for ~16% of PSB’s total loans and ~24% of total
deposits. Strong agricultural business and penetration in rural areas
of North India has helped bank improve its priority sector exposure.
Minimal concerns on asset quality; PCR comfortable
Stringent provisioning norms and various recovery mechanisms
(OTS, out of court settlement and SARFAESI Act) has enabled PSB to
significantly reduce its GNPA from high of 8.4% in FY05 to 0.63% as
at end FY10. GNPA from the real estate sector however remained
high at 23%. With restructured loan portfolio at 2.8%, the bank’s
PCR remains significantly higher at 87%.
Adequately capitalised; attractive valuations. SUBSCRIBE.
With CAR at 13%, PSB is well poised for a brisk balance sheet
growth. Further, tie-ups with Aviva (for life insurance), Bajaj Allianz
(for general insurance) and UTI MF (distribution of mutual fund
product) should shore up its fee based income. While uncertainties
over fresh pension liability remains; strong GoI parentage, dominant
presence in North India, particularly in Punjab, and healthy returns
ratio are the key positives. SUBSCRIBE.
Healthy loan CAGR; mix skewed towards corporates
PSB has outpaced the system loan growth, with loan book witnessing
healthy 41% CAGR over FY07-10. This growth in loan book was led
by sturdy rise in corporate loans which constituted >50% of book.
Amongst corporate loans – Infra (18%), Real estate (17%), Textile
(3%) and Iron & steel (3%) have the highest fund based exposure.
In Retail (15% of book), >70% of exposure is towards home loans.
With a view to increase its presence in Retail and MSME segments,
the bank has set up 49 branches, catering primarily to the need of
agricultural, personal and MSME segments.
Excess reliance on term deposits; LDR at <70% levels
Healthy loan growth in the past and geographical concentration in
North and Central India resulted in increasing reliance on term
deposits. With 52% CAGR in term deposits over FY07-10 (37% CAGR
in total deposits), CASA ratio for the bank declined to 25%. Also LDR
has remained in the narrow range of 65-74% for the past few years.
While <2% of the existing branch network is on a CBS platform, the
bank plans to extend the same to 53% of network by end-2012.
>85% of branches are in North and Central India
PSB is predominantly present in North and Central India, with rich
presence in Punjab. Of the 926 branches as at end H1 FY11, 627
branches (68%) are in North India and accounted for 54% of total
deposits and 62% of advances, respectively for the bank. LDR during
H1FY11 remained high at 78%. With 402 branches in Punjab (43%
of total branch network), deposits/loans from these branches
constituted 24%/16% of total business. LDR, however, remained low
at 44%. Going forward, the bank plans to expand its reach in North
India. (30% of incremental branches)
Capital restructuring boosts book value
PSB undertook a capital restructuring exercise during FY09.
Accordingly, the equity base of the bank was dividend into Equity
capital (Rs1.83bn), innovative perpetual debt instrument (Rs1.6bn)
and perpetual cumulative preference share (Rs2bn) eligible as Tier I
capital and Rs2bn of Perpetual non-cumulative preference shares (as
Tier II) carrying a annual floating coupon rate benchmarked to the
RBI repo rate.
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