Punjab National Bank: Healthy quarter; Asset quality remains benign

Research evidence excerpt

Punjab National Bank: Healthy quarter; Asset quality remains benign

Forecast returns

Forecast price appreciation 15.3%

Forecast dividend yield 2.5%

Forecast stock return 17.8%

Market return assumption 12.0%

Forecast excess return 5.8%

Company Description

Punjab National Bank (PNB) is the third-largest public sector bank in India, with a network of

more than 10,000 domestic branches, with c63% of branches in semi-urban and rural areas

and c57% of the book catering to the retail, agriculture and MSME (RAM) segment. The

government holds a c70% stake in the bank. The bank had a deposit base of Rs15.7trn and a

loan book of Rs10.8trn at the end of March 2025. It reported a tier 1 capital ratio of 14.1% as

of March 2025.

Valuation Method and Risk Statement

We value PNB using a SOTP model and value the core bank using the residual income model.

Although we expect economic growth to remain healthy, a sustained economic slowdown

could impact India’s banking and finance sector (including banks and NBFCs in our coverage

universe) on several fronts. It may lead to a slowdown in credit, increase the risk of non-

performing loans/non-performing assets (NPLs/NPAs), impact fee income and pressure NIM.

An increase in deposit cost could put pressure on margins, and we expect stable-to-declining

margins for banks we cover. A sharp drop in lending rates could also exacerbate the potential

decline in margins and profitability. We will remain watchful of the performance of the MSME

segment and expect corporate asset quality to remain stable but exposure to large leveraged

corporates remains a risk, and a default by a large corporate could significantly impact some

banks in our coverage. Potential downside risks could also include high crude oil prices and