Punjab National Bank profit plunges, sees more bad loans

Punjab National Bank (PNB)(PNBK.NS), India’s fourth-biggest state-run lender by assets, posted a 93 percent fall in quarterly profit and said it expected bad loans to rise further in the current quarter as a central bank-directed clean-up exercise continues.

PNB shares fell as much as 6.5 percent to 88.20 rupees in Mumbai on Tuesday.

Indian banks, burdened by their highest stressed-assets ratio in 13 years, have been asked by the Reserve Bank of India to treat some troubled accounts as non-performing even if actual default has yet to happen and make adequate provisions.

The RBI’s directions followed Governor Raghuram Rajan’s call for clean up of bank balance sheets by March 2017. The banks have been asked to make required provisions during the third and fourth quarters of this fiscal year ending in March.

“The surgery is not over,” PNB Chief Executive Usha Ananthasubramanian told a news conference in New Delhi. “The next quarter as well … I should say the clean-up process is underway,” she said of the three months to March.

PNB, the first major state-run lender to report third-quarter results, said its net profit tumbled to 510.1 million rupees ($7.5 million) for the three months to Dec. 31 from 7.75 billion rupees a year earlier, hurt by sharply higher sour debt provisions.

Analysts on average had expected a net profit of 7.07 billion rupees, according to data compiled by Thomson Reuters.

The quarterly loss would have been 8.58 billion rupees if it was not cushioned by a tax write-back of 9.1 billion rupees.

Gross bad loans as a percentage of total loans were 8.47 percent at end-December, compared with 6.36 percent in the previous quarter. Provisions, including for bad loans, more than doubled from a year earlier to 37.76 billion rupees.

PNB’s bigger state-run peers State Bank of India (SBI.NS), Bank of Baroda (BOB.NS) and Bank of India (BOI.NS) report third-quarter results later this week.