| PNB Gilts Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of PNB Gilts Ltd (PNB Gilts).
The rating continues to reflect the expectation of strong support from the parent, Punjab National Bank (PNB; rated ‘CRISIL AAA/CRISIL AA+*/Stable’). The rating also factors in healthy capitalisation and strong liquidity. These rating strengths are partially offset by volatility in earnings because of inherent susceptibility to movement in interest rates and lack of diversity in revenue.
*Tier I Bonds under Basel III |
Analytical Approach CRISIL Ratings has assessed the standalone credit risk profile of PNB Gilts and continues to factor in strong managerial and financial support from the parent, PNB. The parent will continue to provide strong support to PNB Gilts, considering the strategic importance of the entity, the shared name and majority shareholding. |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong managerial and financial support from the parent, PNB PNB, which is India’s second-largest public sector bank in terms of assets (Rs 16.03 lakh crore), held 74.07% stake in PNB Gilts as on June 30, 2024. The executive director of PNB is on the board of directors of PNB Gilts. Moreover, a shared brand name and status of PNB Gilts as a subsidiary of PNB, imply that a default by the former will have adverse repercussions on the latter. CRISIL Ratings believes that these factors reflect the strong moral obligation of PNB to support PNB Gilts in the event of distress.
Healthy capitalisation PNB Gilts is one of the largest standalone primary dealerships (PDs) in India, with a reported networth and capital adequacy ratio of Rs 1,330 crore and 34.01% respectively as on March 31, 2024 (as against Rs 1,260 crore and 31.83% as on March 31, 2023). The networth levels of the company were adequate as on June 30, 2024, as reflected by CAR which was at 36.06%. The large absolute networth enhances its ability to withstand sharp volatility in interest rates. Average and minimum networth coverage for 100 basis points (bps) change in interest rates stood at 3.7 times and 1.7 times, respectively, for fiscal 2024 (vis-à-vis 5.5 times and 1.9 times, respectively, for fiscal 2023). This metric stood at 2.3 times and 1.7 times, respectively, for the three months ended June 30, 2024.
Strong Liquidity profile PNB Gilts deals in highly liquid securities, with government securities (G-Secs) and treasury bills (T-bills) forming almost 91.28% of stock-in-trade as on June 30, 2024. Exposure to public sector undertakings (PSUs), banks and financial institutions is restricted to ‘AA’, ‘AA+’ and AAA’ rated categories, and that for state-owned entities is limited to ‘AAA’ and for non-PSUs, to ‘AAA’ and ‘AA+’ categories. Liquidity position is further enhanced by access to collateralised borrowing and lending obligation, call money market and systemic support via the liquidity adjustment facility (LAF). In addition, the Reserve Bank of India (RBI) extends refinance and liquidity support to standalone PDs, including PNB Gilts, through a separate notified scheme.
Weakness: Inherent volatility in earnings and lack of income diversity The income profile remains dependent on the core PD business with fee-based income constituting less than 1% of the total income in fiscal 2024. The PD business involves underwriting and trading of G-Secs, and therefore rise in interest rates could adversely affect volumes. Amidst such volatility, limited income diversity restricts the company’s ability to cushion profitability. The company is under the process of launching forex operations to add diversity to its earnings profile. |
Liquidity: Strong The parent, PNB, has extended facilities worth Rs 1,900 crore to the company, which comprises a regular overdraft facility of Rs 400 crore and an intraday overdraft facility of Rs 1500 crore. Additionally, the company has access to refinance limit available from the RBI under liquidity support facility. The maximum credit limit available under this scheme was Rs 1868 crore as on June 30, 2024. |
Rating Sensitivity Factors Downward Factors
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About the Company PNB Gilts was incorporated in 1996, as a wholly owned subsidiary of PNB. The company bids at auctions of G-Secs and infuses liquidity in the secondary market. It also offers debt capital market (DCM) services. As part of its DCM business, it acts as an arranger or lead manager for private placement of debt by corporate entities and public sector units.
Following a public issue in July 2000, PNB’s stake in the subsidiary came down to 74.07% and has remained at this level ever since. The company primarily trades in debt and money market instruments.
For fiscal 2024, the company reported a PAT of Rs 69 crore on a total income (net of interest expense) of Rs 165 crore, against net loss of Rs 77 crore on a total income (net of interest expense) of Rs -46 crore, in the previous fiscal.
For the quarter ended June 30, 2024, PAT was Rs 53 crore on a total income (net of interest expense) Rs 86 crore against a PAT was Rs 58 crore on a total income (net of interest expense) of Rs 89 crore, for the corresponding period of last fiscal. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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