Target: ₹140

CMP: ₹122.70

Punjab National Bank`s return ratios have been still depressed versus its peers due to higher provisions and high operational costs but is likely to improve hereon. Earlier, credit cost was higher led by higher net NPA book. Lower slippages trend, strong recoveries & upgrades and net NPA ratio below 1 per cent is likely to help in faster normalisation of credit cost from hereon.

Moreover, lower retirement-related provisions/ wage settlement arrears are likely to reduce the cost pressure. The bank is eyeing ~12-14% loan growth going forward. The bank’s excess liquidity profile (credit-deposit ratio about 69 per cent, LCR about 140-150 per cent) in an environment of deposit growth challenges, places it well to grow the book without worrying about deposit growth. A healthy loan growth outlook, ability to manage NIMs and lower opex growth is expected to lead strong PPoP growth.

Overall, asset quality outlook continues to remain stable. Lower slippages formation and healthy recoveries are likely to boost asset quality further along with net NPA below 1 per cent will help in faster normalisation of credit costs. Healthy PPoP growth and normalisation of credit costs should drive a strong improvement in return ratios in FY25. We expect RoA/RoE to be at 0.9-1.0 /12-13 per cent in FY25.