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CARE revises ratings of PNB's debt instruments from 'AA/Stable' to 'AA+/Stable'

CARE revises ratings of PNB's debt instruments from 'AA/Stable' to 'AA+/Stable'

CARE Ratings has factored in majority ownership, support from the government, position in the banking sector as the second-largest PSB.

Post the merger of UBI and OBC with PNB, it has raised equity capital, improved capitalisation, which enhanced its ability to absorb asset quality pressures and support growth, says CARE. Photo: Reuters Post the merger of UBI and OBC with PNB, it has raised equity capital, improved capitalisation, which enhanced its ability to absorb asset quality pressures and support growth, says CARE. Photo: Reuters

CARE Ratings has revised the ratings on Punjab National Bank's various debt instruments from AA/Stable to AA+/Stable. PNB, in a statement, said Care Ratings has revised ratings for "Basel II Upper Tier II Bonds ratings from 'CARE AA/Stable' to 'CARE AA+/Stable' and "Basel III AT1 Bonds from 'CARE AA-/Stable' to 'CARE AA/Stable'".

The ratings agency has also reaffirmed the ratings on "Infrastructure Bonds, Basel II Lower Tier II Bonds & Basel III Tier II Bonds at 'CARE AA+/Stable', Basel II Perpetual Bonds at 'CARE AA/Stable' and Certificate of Deposits at 'CARE A1+'".

CARE Ratings said it has factored in majority ownership, support from the government, position in the banking sector as the second-largest PSB.

As per CARE Ratings, PNB's rating continues to derive strength from a "strong and established franchise". It helps the bank garner a low-cost and stable Current Account Savings Account (CASA) deposit base, with comfortable liquidity and making its liability profile strong.

Post the merger of United Bank of India (UBI) and Oriental Bank of Commerce with PNB on April 1, 2020, the bank has raised equity capital, improved capitalisation, which enhanced its ability to absorb asset quality pressures and support growth.

CARE expects the government will provide capital support to PSBs on a need basis so that covenants for coupon payment is not breached in future.

As per CARE, PNB has seen a significant increase in distributable reserves and capital cushion over the minimum regulatory requirement. The bank's total capital adequacy ratio (CAR) has improved and stood at 15.20 per cent.

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The ratings, however, are constrained on account of "weak asset quality parameters" due to COVID-19 stress, which has resulted in the high restructured portfolio, higher provisions, impacting the bank's profitability and muted growth in advances.

PNB had reported a standalone net profit of Rs 620.81 crore for the quarter ended September 30, 2020, marking a 22.43 per cent increase from Rs 507.05 crore in the year-ago period.

Net interest income (NII), the difference between interest earned and interest expended, at the end of the second quarter of the financial year 2020-21 stood at Rs 8,393.20, as opposed to Rs 4,263.84 in the year-ago period.

PNB reported an improvement in asset quality, with the amount of net NPAs at Rs 30,919.84 crore. Net NPAs as a per cent of net advances during Q2 FY21 stood at 4.75 per cent, as against 7.65 per cent in Q2 FY20 and 5.39 per cent in Q1 FY21.

The Punjab National Stock is trading at Rs 40.05, 0.40 paise or 0.99 per cent down, as compared to the previous session close of Rs 40.45 on the NSE.

Also read: PNB Q2 profit rises 22% to Rs 621 crore; asset quality improves