| Punjab and Sind Bank | ||||||
| Rating Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term debt instruments of Punjab and Sind Bank (P&SB) at ‘CRISIL AA/Negative’.
CRISIL Ratings has also withdrawn its rating on Lower Tier-II Bonds (under Basel II) to Rs 200 crore (See Annexure 'Details of Rating Withdrawn') in-line with its withdrawal policy. CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
The rating continues to factor in expectation of strong support from majority owner, the Government of India (GoI). These strengths are partially offset by the bank’s weak asset quality and modest earnings.
The 'Negative' outlook on the debt instruments reflects weakening in the bank’s asset quality and profitability, especially in relation to the rating category. Further, it remains susceptible to current challenging macro environment. Gross non-performing assets (NPAs) of the bank stood at 13.8% as on March 31, 2021. Also, the bank reported a loss of Rs 2733 crore for fiscal 2021 with a return on assets (RoA) of negative 2.59%. Nevertheless, the first quarter of fiscal 2022 saw marginal improvement in gross NPAs at 13.3% and a profit after tax of Rs 174 crore, which was attributed lower provisioning costs.
In-line with the Reserve Bank of India (RBI) measures for Covid-19, P&SB had given moratorium to its borrowers. While collection efficiency was impacted during the initial months of the moratorium, they have inched up since then. However, the second wave of the pandemic has resulted in intermittent lockdowns and localised restrictions, which could lead to some delay in collections in the coming months following the impact on the underlying borrowers’ cash flows. Further, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
Under the RBI August 2020 resolution framework for Covid-19-related stress, the bank implemented restructuring on around 3.7% of gross advances as on June 30, 2021. This is over and above around 0.7% of advances restructured under the MSME scheme. The ability of the bank to manage collections and asset quality during the second wave of the pandemic will remain a key monitorable. The impact of the third wave of the pandemic, if and when it comes in terms of its spread, intensity and duration will also be closely monitored. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of P&SB. CRISIL Ratings has also factored in the strong support that the bank is expected to receive from its majority owner, the GoI, both on an ongoing basis and in the event of distress. |
Key Rating Drivers & Detailed Description Strengths:
The rating continues to factor in the expectation of strong government support, both on an ongoing basis and in the event of distress. This is because GoI is both, majority shareholder in public sector banks (PSBs), and the guardian of India's financial system. Stability of the banking sector is of prime importance to the government, given its criticality to the economy, strong public perception of sovereign backing for PSBs, and severe implications of any PSB failure, in terms of political fallout, systemic stability, and investor confidence. The majority ownership creates a moral obligation on GoI to support PSBs, including P&SB.
The bank’s CET-1, tier-1 and overall capital adequacy ratio (CAR) stood at 12.38%, 14.34% and 17.62%, respectively, as on June 30, 2021 (12.05%, 13.98% and 17.06%, respectively, as on March 31, 2021).
Weaknesses:
Asset quality has been under stress, with gross non-performing assets (NPAs) at 13.33% as on June 30, 2021 (13.76% as on March 31, 2020 and 14.18% a year ago). This was largely driven by slippages in large corporate accounts and subdued growth in loan book in previous years. In absolute terms, gross NPAs decreased to Rs 9055 crore as on June 30, 2021 (Rs 9334 crore as on March 31, 2021 and Rs 8874 crore as on March 31, 2020). Slippages of the bank declined and stood at 2.7% in fiscal 2021 as compared to 4.2% in fiscal 2020. While the pace of deterioration in asset quality may slow down with decrease in slippages (partly on account of one-time restructuring), gross NPAs are expected to remain high in the near term owing to possible slowdown in recoveries in due to Covid-19 pandemic. The bank’s ability to contain deterioration in asset quality remains a key monitorable.
Earnings has been impacted by deterioration in asset quality. The bank reported a loss of Rs 2733 crore for fiscal 2021 as against a loss of Rs 991 crore for the previous fiscal. This is largely on account of higher provisioning requirement; credit cost increased to 4% for fiscal 2021 from 2.5% for the previous fiscal. This has, however, led to an increase in provision coverage ratio (PCR) to 73.6% as on March 31, 2021 from 47.2% as on March 31, 2020. As on June 30, 2021, PCR stood at 75.6%.
However, the bank’s pre-provisioning profits (as a proportion of average assets) remains lower than industry average and declined by 30 bps in fiscal 2021 to 0.7% from 1% in the previous fiscal. This was partly attributed to higher operating expenses as bank had provided one time Rs 369 crore towards provision for terminal benefits based on revised actuarial projection. For the quarter ended June 30, 2021, P&SB reported a profit of Rs 174 crore. The ability to improve its asset quality, and hence profitability, will remain a key monitorable. |
Liquidity: Strong Liquidity coverage ratio was 215.52% for the quarter ended June 30, 2021 and was higher than the regulatory requirement. The excess statutory liquidity ratio was Rs 7514.72 crore (7.64% of net demand and time liabilities) as on same date. The bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the Reserve Bank of India, access to the call money market, and refinance limits from sources such as the National Housing Bank and National Bank for Agriculture and Rural Development. |
Outlook: Negative CRISIL Ratings believes P&SB will continue to benefit from the strong government support. The bank's asset quality and profitability though will remain under pressure over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Bank P&SB is a relatively small PSB, founded in 1908 in New Delhi. The bank has 1531 branches and 1096 ATMs as on June 30, 2021, primarily in northern India. GoI's ownership stood at 97.07% as on June 30, 2021.
For fiscal 2021, the bank reported a loss of Rs 2733 crore and total income (net of interest expenses) of Rs 3165 crore, against a loss of Rs 991 crore and total income (net of interest expenses) of Rs 2954 crore for the previous fiscal.
For the quarter ended June 30, 2021, net loss was Rs 174 crore and total income (net of interest expense) was Rs 928 crore, against a loss of Rs 117 crore and total income (net of interest expense) of Rs 692 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
Annexure - Details of rating withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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