PNB Housing Finance stock more valuable than its parent PNB, RBL Bank too pips govt lender

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PNB Housing Finance more valuable than its parent PNB, RBL Bank too pips govt lender

The Punjab National Bank (PNB) stock has more than halved in its value since banking fraud allegedly carried out by diamantaire Nirav Modi and his uncle Mehul Choksi came to light early in February this year. With most analysts and brokerages getting cautious on the stock after the bank reported its biggest ever quarterly loss of Rs 13,417 crore in Q4, there is more bad news for the stock.

Its market capitalization has dipped below that of its housing finance arm PNB Housing Finance and private sector lender RBL Bank.


The market capitalisation of PNB Housing Finance stood at Rs 21,199.07 crore. The m-cap of Punjab National Bank was at Rs 20,842.33 crore.

Market cap of RBL Bank stood at Rs 21,491 crore.

Deepak Jasani, Head, retail research at HDFC securities said, "PSU Banks have been suffering from  governance issues, operational challenges, lack of internal controls, unending slippages, uncertain business prospects and diluted franchise. Fresh capital infusion and/or apparent cheap valuations may result in temporary bottom fishing which needs to be converted into medium term investment buying. This seems difficult unless a few of the above challenges are overcome.  Once PNB provides the balance half provision on account of LoU scam, it may come under dire need of base capital."

"The RBI puts banks under its watch initiating Prompt Corrective Action (PCA) under which restrictions are imposed on fresh loans and dividend distribution. As of now, 11 out of 21 PSU Banks are under the PCA for their net Non-Performing Assets (NPA) higher than 6%. Whether putting banks under PCA helps is not clear as in the absence of advances growing, the NPA as a percentage of advances may not fall unless there is a turnaround in the economy and/or recovery measures bear fruits soon," Jasani added.

PNB had m-cap of Rs 44,624.67 crore before the lender was hit by a nearly $2 billion fraud in which the billionaire jeweller Modi allegedly acquired fraudulent letters of undertaking (LoU) from one of its branches for raising overseas credit. For the quarter ended March 31,2018,  PNB held 5,49,14,840 shares amounting to 60.33 per cent stake in PNB Housing Finance.

"With concerns of capital raising and weaker asset quality, we remain cautious and cut our rating to Reduce from Neutral," Nomura said in a research note. "We believe governance issues, operational challenges, uncertain business prospects and diluted franchise makes it a dud investment proposition. FY18 events and weak earnings profile suggest it is on weak terrain. Hence, we downgrade to 'reduce' with a revised target price of Rs 70," an Edelweiss Research note said.

The state-owned bank had reported standalone profit of Rs 261.90 crore in the fourth quarter of the preceding 2016-17 fiscal. The bank has witnessed deterioration in gross net performing assets (NPAs) or bad loans, which rose to 18.38 per cent of gross advances at the end of March quarter this year, as against 12.53 per cent a year ago.


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