PNB picks up 30 percent stake in Metlife

Punjab National Bank (PNB), the second largest public sector bank, is buying a 30 percent stake in Metlife, an insurance company. The company did not disclose valuation details. According to the financial document published by Metlife, the paid-up capital of the company is around Rs 2,000 crore. The paid-up capital of Metlife could expand as a result of new equity shares to PNB. The company reported a surplus of Rs 7.2 crore for the financial year ended March 2011. PNB chairman and MD KR Kamath said that details about valuation would be released on completion of the deal and regulatory approvals.

He said that PNB was looking at targets Bharti AXA and Aviva besides Metlife. Metlife will be renamed as PNB MetLife. Metlife is currently owned by Metlife International, Jammu and Kashmir Bank, Shapoorji Pallonji and other private investors. J&K Bank has 25 percent stake, Pallonji gropu has 10 percent and private investors have 39 percent, some of whom might look for a way out of the company.

PNB also declared its first quarter results today. Key takeaways from concall with management:

• Kamath has maintained a guidance of more than 20 percent credit growth for the year and 3.4 percent net interest margin. Net interest margin is the difference between the cost of funds and the lending rate of a bank.
• Bad loans have gone up by around Rs 500 crore from March 2011. Raising interest rates have a negative effect on the asset quality. On the other hand, the bank has also partially shifted to computerized accounting of bad loans instead of depending on bank manager’s assessment of what loans could turn bad.
• PNB has an exposure of Rs 2,710 crore to Air India. Their exposure to the power sector hovers around Rs 17,160 crore, has grown by more than 5 percent for this quarter. Most of this, Kamath says, are disbursements for loans already sanctioned earlier.
• The employee expense for the company also went up to Rs 504 crore because of a 45 percent rise in expenses for pension and gratuity. The bank gave guidelines that this was not a one off expense and thus affect the full year to March 2012.
• The bank had also not raised rates with the last 25 bps policy rate hike by RBI. They will decide tomorrow whether to raise rates this time after the 50 bps hike on Tuesday. (100bps=1 percent). They are also contemplating raising deposit rates. The deposit growth was strong at 27 percent this quarter.