Subscribe to Punjab & Sind Bank IPO - India Infoline

Punjab & Sind Bank (PSB), with 926 branches is predominantly present in North and Central India. Its key strengths are: a) amongst the lowest NPAs in the PSU space (GNPA <1%), b) adequate capital (CAR at 13%), c) strong GoI holding (82% post dilution) and d) healthy returns ratio (avg RoE/RoA at 22%/1.0%). The geographical concentration (~78% of loans and deposits both) in North India including Punjab however has capped its loan-deposit ratio. With 9% YTD growth in its loan book, the bank is focusing on increasing the share of Retail and MSME portfolios. The capital restructuring done in late 2008 has enhanced book value of the bank to Rs111, translating into a valuation of 1.0x-1.1x trailing P/BV at the IPO price band.

Strong presence in agri-rich Punjab

PSB has established a rich presence in the agri-dominated state of Punjab. A lead bank in three districts of Punjab (Ludhiana, Faridkot and Moga), PSB operates through 402 branches. Cumulatively, Punjab accounts for ~16% of PSB's total loans and ~24% of total deposits. Strong agricultural business and penetration in rural areas of North India has helped bank improve its priority sector exposure.

Minimal concerns on asset quality; PCR comfortable

Stringent provisioning norms and various recovery mechanisms (OTS, out of court settlement and SARFAESI Act) has enabled PSB to significantly reduce its GNPA from high of 8.4% in FY05 to 0.63% as at end FY10. GNPA from the real estate sector however remained high at 23%. With restructured loan portfolio at 2.8%, the bank's PCR remains significantly higher at 87%.

Adequately capitalised; attractive valuations. SUBSCRIBE.

With CAR at 13%, PSB is well poised for a brisk balance sheet growth. Further, tie-ups with Aviva (for life insurance), Bajaj Allianz (for general insurance) and UTI MF (distribution of mutual fund product) should shore up its fee based income. While uncertainties over fresh pension liability remains; strong GoI parentage, dominant presence in North India, particularly in Punjab, and healthy returns ratio are the key positives. SUBSCRIBE.

Source : Equity Bulls

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