With CET1 < 6% and Rs 84 bn of deferred losses\/expenses, the need for a bailout by the government is immediate. PNB may also be restricted to conduct normal business. Two of its Executive Directors have also been divested of their functional powers. PNB will likely face significant operational challenges in the near term. Price target cut by 27%, maintain Hold. Asset quality Net slippage in the quarter stood at Rs 310 bn (i) Rs 75.8 bn from LoU, (ii) Rs 102.4 bn from RBI circular (iii) Rs 130 bn from retail & other corporate. Await clarity on quantum of non NPL stress. Gross NPLs at 18.4%, with provision coverage of 58.4%.At CET1 of 5.95% with deferred loss\/expenses of Rs 84 bn, CET 1 has technically breached AT1 write down trigger of 5.5% of RWA (this increases to 6.125% post Mar 19) \u2013 making capital issuance imminent either through share sale to government or selling down of assets. Loan growth driven by retail, CASA stable Domestic loans grew at 9.8% y-o-y. Retail loans grew 15.5% y-o-y \u2014 driven by housing loans (up 31% y-o-y). Corporate credit growth modest at 7% y-o-y. Savings deposits grew 4.1% y-o-y, term deposits 4.8%. Current account growth was impacted by down-sizing of foreign business. Average CASA at 43.1% (flat q-o-q) Losses at even core operation level Even adjusting for interest reversals, core PPoP would have been only marginally positive. Domestic NIMs were 1.9% (v\/s 2.6% in Q3). Employee cost of Rs 39 bn much higher than usual Rs 16-18 bn, due to higher pension provisioning. Fact that company aggressively wrote back pension liabilities in Q4FY17 calls for the questioning of assumptions. Deferred gratuity & MTM losses to be spread over next three quarters. Change in estimates We cut our operating profit estimate by 19.5% and 26.5% for FY19\/20 factoring in lower growth in a capital constrained situation, lower margins, higher opex. We build in higher credit costs and expect asset quality to remain weak in near term. Forecast loss in FY19 and cut our FY20 EPS estimate by 40%. Valuation\/risks We roll forward earnings by a quarter PNB trades at 0.9x book versus 10 year average of 2.1x. We value PNB at 1.7x adj. book (Mar\u201919e) and 4.2x EPS. We also add Rs 24 to reflect the value accruing from PNB Housing. Risk: Downside: higher impairments and credit costs. Upside: higher IBC recoveries, improvement in loan growth. Asset quality was the biggest disappointment Biggest disappointment in the quarter came from high credit losses. Net slippage in the quarter stood at Rs 310 bn (30% slippage ratio), of which (i) Rs 75.8 bn was on account of LoU\/LC fraud (50% recognised, balance 50% will be spread over next 3 quarters), (ii) Rs 102.4 bn was on account of RBI circular on stress asset resolution (mostly from restructured loan book) (iii) Rs 130 bn from retail & other corporate. We await clarity on balance quantum of non-NPL stress. Gross NPLs stood at 18.4%, with cumulative provision coverage of 58.4%. CASA ratio stable; deposit growth impacted by foreign business downsizing Overall deposit growth remained muted at 3.3% y-o-y while domestic deposits grew 6.2% y-o-y. Savings deposits grew at 4.1% y-o-y, term deposits at 4.8%. Current account growth was impacted by down-sizing of international business. Even as closing CASA at 43.8% was 170 bps lower sequentially, average CASA at 43.1% remained flat.