PNB soars 6% on heavy volumes; stock has more-than-doubled since April

Thus far in the month of December, PNB has appreciated by 25% on consistent improvement in headline asset quality metrics, and steady reduction in fresh slippages over the recent past.

Shares of Punjab National Bank (PNB) hit over four-year high at Rs 96.93, surging 6 per cent on the BSE in Thursday’s intra-day trade backed by heavy volumes.

Since April, the stock price of state-owned lender has more-than-doubled or zoomed 108 per cent on consistent improvement in headline asset quality metrics, and steady reduction in fresh slippages over the recent past. It was quoting at its highest level since April 2019.

The average trading volumes at the counter jumped nearly three-fold today. A combined nearly 127 million equity shares of PNB changed hands on the NSE and BSE till 02:01 PM.

On March 4, 2020, the Union Cabinet approved the amalgamation of PNB, United Bank of India and Oriental Bank of Commerce. The merger became effective from April 1, 2020. PNB is among the top three Public Sector Banks in India by way of business size, with a strong presence in North and Central India. The government of India owned 73.15 per cent of the bank as on September 30, 2023.

Thus far in the month of December, PNB has appreciated by 25 per cent after the rating agencies ICRA, CARE Ratings, CRISIL Ratings and Brickwork Ratings upgraded/ reaffirmed the ratings of bank’s instruments with a stable outlook.

The upgrade in the long-term ratings for the Basel III - Additional Tier I Bonds factors in PNB’s consistent improvement in headline asset quality metrics, and steady reduction in fresh slippages over the recent past, Brickwork Ratings said.

The rating agency further said these could likely further improve given PNB’s attempts to improve the overall asset quality, leading to possible lower credit costs and consequent improvement in overall profitability going forward.

Although PNB’s asset quality has seen significant improvement, it remains weaker as compared to peer large public sector banks (PSBs) and its return metrics remain subpar as compared to peer large PSBs on account of increase in the operating cost as well has higher credit cost incurred by the bank during FY23 and H1FY24. CARE Ratings expects the bank’s asset quality parameters to improve in the near term which would improve its earnings profile.

Meanwhile, ICRA said, PNB’s headline asset quality indicators have improved, driven by the moderation in the fresh non-performing advances (NPA) generation rate along with healthy recoveries/upgrades.

As the bank continues to shore up the provision cover on legacy NPAs, its solvency1 profile has improved steadily. Notwithstanding the effort to support the provision coverage, which has slightly slowed down the pace of recovery of the net profitability, the profitability levels remain on an improving trajectory, the rating agency said in rationale.

ICRA expects PNB to maintain sufficient capital cushion over the regulatory levels, although the impact of transitioning to provisioning, based on the expected credit loss (ECL) framework, on the capital and profitability levels will remain monitorable.

According to CRISIL Ratings, with a healthy provision coverage ratio (PCR) excluding technical write-offs at 80.0 per cent as on September 30, 2023, the incremental credit costs are expected to be limited, supporting the gradual improvement in the profitability. However, the bank’s ability to contain slippages, manage overall asset quality and sustainably improve its overall earnings profile (even as the bank transitions to ECL framework) would remain a key monitorable, the ratings agency said.

Meanwhile, the Reserve Bank of India (RBI) in its ‘Trend & Progress Report for 2022-23’ stated that the both the financial institutions remained sound and resilient with banks’ gross non-performing assets (GNPAs) at a decade-low.

The report also stated that banks and NBFCs need to strengthen their balance sheet further, improve governance standards, and remain watchful on the rise in unsecured loans. READ MORE