Punjab National Bank (PNB) posted the worst ever quarterly loss in India’s banking history after over R15,000 crore of restructured loans slipped into the non-performing asset (NPA) category in the March 2016 quarter following the central bank’s asset quality review (AQR). Management commentary suggested the worst may not be over. Had it not been for a tax write-back of R1,890 crore, the quarter’s loss would have been more than the R5,367 crore declared.

In response to a CNBC-TV18 query on whether NPAs would reduce now that growth was picking up — finance minister Arun Jaitley had said that to the channel about the banking sector as a whole before the PNB results — MD and CEO Usha Ananthasubramanian said that while growth was certainly picking up in stressed sectors like roads, it was difficult to say if stressed borrowers would benefit enough to be able to repay loans on time.

This is in keeping with Credit Suisse’s argument that the interest cover of many stressed groups was under 1 and that a large portion of stressed loans were still not classified as stressed in the books of many banks.

After falling sharply, the bank’s stock, however, closed 3.25% higher on Wednesday on hopes that the worst was over.

At 12.9% of its advances, PNB’s gross NPAs are more than double the 6% estimate by the Reserve Bank of India at the end of March 2016 for all PSU banks under a severe stress scenario. The RBI projected this rising to 8% by March 2017, while that for individual banks could be much higher. Gross NPAs for all PSU banks that have declared their results so far have nearly doubled over the last four quarters to R284,000 crore in March — this does not include State Bank of India, which will declare its results next week on Friday.

With PNB’s restructured loans falling from R35,000 crore in the December quarter to R20,100 crore in the March one, the rule of thumb appears to be that anywhere between 40% and 50% of restructured loans are likely to slip into NPA category. PNB’s SMA-2 accounts — where repayment is overdue between 60 and 90 days — stand at R11,000 crore but the bank said it expects strong recovery of R15,000-20,000 crore in FY17.

PNB is not alone in the category of PSU banks declaring unexpectedly bad results. After declaring NPAs of `16,300 crore a year ago, Bank of Baroda (BoB) saw NPAs surge to `39,000 crore in Q3FY16 and further to `40,500 crore in Q4. As a result, losses over the last two quarters have averaged around `3,300 crore while provisioning saw a big jump. Provisioning for PNB rose from `3,800 crore a year ago to `10,500 crore in the March quarter while that for BoB from `1,800 crore a year ago to `6,900 crore in the March quarter.

In Q4 PNB had also provided `166.36 crore or 7.5% of the existing loans of `2,218 crore under food credit availed by the Punjab government. As per the RBI’s directive, the provision is required to be made in two quarters — 7.5% in March and 7.5% in June 2016. During the year, PNB revalued immovable properties, forming a revaluation surplus of `1,478 crore.

Seven heavily stressed sectors including steel, infrastructure, textiles and cement contributed more than 55% to the GNPA of the bank. Iron and steel alone contributed 25%.

While the government holding in the bank increased to 62.08% from 59.86% during the year after it infused capital, PNB said it would soon prepare an action plan to sell some of its non-core assets to beef up the capital base. “We have certain investments in UTI AMC, subsidiaries and asset reconstruction company, in which we will unlock value at an appropriate time,” Ananthasubramanian said.

PNB’s net interest margin fell by 76 basis points to 2.03% in the March quarter against the year-ago quarter. The bank’s net interest income — the difference between interest earned and interest expended — fell 27% year-on-year to `2,768 crore.