Why is PNB near its 8-month low after slipping 7% in 2 days? Details here

PNB shares have slipped after it announced Rs 109.16 per share as the floor price for the QIP, launched on September 23, that aims to raise Rs 7,500 crore.

Punjab National Bank (PNB) shares hit a nearly eight month low of Rs 103.65, after falling 4 per cent on the BSE in Wednesday’s intra-day trade amid heavy volumes. 

In two days, the stock of the state-owned lender has slipped 7 per cent, after PNB announced the floor price for the qualified institutions placement (QIP) that it launched on September 23. The bank has set a floor price of Rs 109.16 per share. 

On Monday, the company, in an exchange filing, said its board has approved and adopted the preliminary placement document along with the application form for the QIP issue. The bank may offer a discount of not more than 5 per cent on the floor price so calculated for the issue, it said.

At 12:17 PM, PNB was trading 3 per cent lower at Rs 104.85, below the floor price it has set for the QIP. In comparison, the BSE Sensex was trading 0.12 per cent down around the same time.

The company's stock is trading at its lowest level since January 29, 2024. It was down 27 per cent from its 52-week high of Rs 142.90 that it hit on April 30. The average trading volumes on the counter jumped 1.5 times, with a combined 48.38 million shares changing hands on the NSE and BSE.

PNB had taken the board's approval last year for raising up to Rs 7,500 crore via the share sale in one or more tranches during 2024-25.

The bank intends to utilise the net proceeds from the QIP to augment its Tier-I capital base, which will help it meet its future capital requirements, along with supporting its growth plans and enhancing its business.

PNB is a well-capitalised public sector bank, which had a common equity tier-1 (CET-1) ratio of 10.95 per cent in June 2024 quarter (Q1FY25) and a capital adequacy ratio (CAR) of 15.79 per cent. The CET-1 ratio was at 11.04 per cent in FY24 and 11.22 per cent in FY23, while the CAR was at 1597 per cent and 15.50 per cent during the respective periods.

The bank has already achieved a return on assets of 0.82 per cent in Q1FY25 (under the old tax regime) and intends to increase it to 1 per cent in the medium term, which clearly signifies the improving internal accruals of the bank over the past two years (FY24: 0.54 per cent, FY23: 0.18 per cent).

However, it is pertinent to sustain this trajectory through the cycle. Even after factoring in elevated provisioning requirements in the near term (even after net NPA of 0.6 per cent), India Ratings and Research (Ind-Ra) believes the capital buffers would remain significantly higher than the regulatory requirements, owing to its increasing internal accruals.

Furthermore, PNB had raised Rs 5,590 crore through two qualified institutional placements in FY21 and FY22. This, the agency believes, brings incremental comfort with respect to the bank’s capital raising ability.

According to Ind-Ra, while PNB's capital base is adequate for now, there is a need to continuously grow advances and build buffers ahead of the implementation of expected credit loss norms. This will continue to be a key monitorable, it added.

Meanwhile, PNB reported a healthy Q1 quarter, characterised by a sharp decline in provisions. Growth in advances was robust, and the bank's management aims to improve its share in the real asset management (RAM) portfolio, which will support margins.

PNB's asset quality also continues to witness a sharp improvement as recoveries and w-off continued to stay at higher levels. Provision coverage ratio (PCR) thus improved further to 88 per cent, while asset quality ratios also improved.

Special Mention Account (SMA) overdue (with loans over Rs 5 crore) remained under control at 0.16 per cent of domestic loans, while the bank continues to guide robust recoveries at 2x of slippages.

It guided gross non-performing assets (GNPA) ratio to decline to around 4 per cent (from the earlier guidance of 5 per cent), while credit cost is guided at 0.5 per cent (from earlier guidance of 1 per cent), Motilal Oswal Financial Services said in its result update for the company.

Meanwhile, technical analysts at JM Financial Institutional Equities, said the BJP's victory in the Lok Sabha election 2024 for a third consecutive term failed to cheer the PSU sector, particularly in the banking space.

The PSU Bank index (NSEPSBK) fell from a high of 8,053 on June 3 to a low of 6,503 on September 11, representing a decline of around 19 per cent over 3.5 months.

The brokerage firm believes this significant drop offers an opportunity to re-evaluate the sector, with expectations that the PSU Bank index is more likely to outperform the Nifty in the future.