PNB hits over 4-year high, zooms 33% in 1 month; mcap nears Rs 1 trillion

Shares of Punjab National Bank (PNB) hit over four-year high of Rs 81.85, up 3 per cent on the BSE in Wednesday's intra-day trade, on expectations that the bank’s asset quality parameters will improve in the near term which would improve its earnings profile.

The stock of the state-owned lender was trading at its highest level since July 2019. In the past one month, the stock has zoomed 33 per cent as compared to 1.7 per cent rise in the S&P BSE Sensex. Further, in the past six months, it has skyrocketed 82 per cent as against 14.8 per cent rally in the benchmark index.

A sharp rally in stock price has seen PNB's market captialisation (market cap) inche towards Rs 1-trillion mark. At 02:55 PM, PNB's market cap stood at Rs 90,048 crore, BSE data shows.

On September 20, Care Ratings revised the ratings assigned to the debt instruments of PNB with stable outlook. The revision in ratings factors in sustained improvement in asset quality parameters and reduction in incremental slippages, which, along with expected recoveries from non-performing assets (NPAs), is expected to further improve the asset quality leading to lower credit cost and resultant improvement in profitability going forward, the rating agency said.

The ratings also factor in improvement in the capitalisation levels of the bank due to capital infusion over the recent past and accretion to profit, which has provided the bank adequate capital buffer over and above the minimum regulatory requirement, which will help the bank fund its credit growth and absorb any loss in the near future.

Although PNB's asset quality has seen significant improvement, it remains weaker as compared to larger peer public sector banks, and its return metrics remain subpar as compared to peer large public sector banks (PSBs) on account of increase in the operating cost as well has higher credit cost incurred by the bank during FY23 and Q1-FY24. CARE Ratings expects the bank’s asset quality parameters to improve in the near term which would improve its earnings profile.

The majority ownership and the continued and expected support by the Government of India (GoI) to the bank considering its systemic importance and the position in the Indian banking sector being the second-largest PSB and the fifth-largest bank in India in terms of total business (advances and deposits). The government of India holds 73.15 per cent stake in PNB.

PNB has demonstrated equity raising ability and the likelihood of an improvement in its pre-provisioning operating profitability over FY23, helping the bank maintain and possibly grow its market share in advances and deposits, India Ratings & Research (Ind-Ra) said.

The management has guided for a further decline in the gross non-performing assets (NPAs) and gross NPA ratios. The agency believes that the provisioning requirement in FY24 are likely to remain subdued in comparison to earlier years as the prevailing risk environment is benign and large corporate slippages have already been recognised.

However, provisions will still remain significant due to: i) ageing provisioning requirements; and ii) provisioning requirements for fresh slippages, including that from the Emergency Credit Line Guarantee Scheme and COVID-19 restructuring pools, Ind-Ra said in rating rationale.