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Mixed bag

Punjab National Bank ’s (PNB) Q 3FY2 6 PAT at INR 51bn was broadly in line with our estimates , benefitting from higher treasury ,while higher credit cost ( the bank made floating provisions) and lower NII (NIMs below estimates) fed into in -line earnings. Key highlights were : a) NIMs came in below estimates (down 8bps QoQ ;steeper drop than peers that have reported results thus far) , which fed into lower NII (flat QoQ). The bank also lowered its FY26 NIM guidance , b) higher treasury (benefitting from stake sale) , which the bank utilized to make floating provisions , c) overall asset quality trends was steady – slippages curtailed at sub -70bps, GNPLs at 3.2% and NNPLs at 0.32%. Credit cost looked optically higher as the bank made floating provisions (of INR 9.55bn) in anticipation of ECL transitions. The key discussion hereon is whether there is scope to improve core metrics or are these closer to the peak? Also, consistency in core PPOP is still not established and profitability is still soft . We think FY27 could be softer on core performance . The return ratios – RoE of 10- 12% even by FY2 8E – run lower than peer s. We maintain Accumulate with a revised TP of INR 135 (as we roll to December 2027 E ).

Asset quality holding on, keenly monitor FY27 trajectory: PNB saw slippages being curtailed at INR 19bn (sub -70bps) with steady improvement across segments , even as slippages in the MSME segment were sticky. Moreover, the SMA pool has been sticky for the MSME segment , which needs monitoring , even as management stated that the MSME portfolio is either backed by guarantees or are secured in nature. Meanwhile, recovery trends were steady , which fed into GNPL decline by 2.6% QoQ (to 3.2%). NNPLs now stand at 32bps, lending comfort. The credit cost was higher as PNB made floating provisions (of INR 9.55bn), leading to total floating provisions of INR 17. 75bn , undertaken in anticipation of ECL transition impact . The bank expects a better recovery trend , which is the key given the fact that asset quality is imperative to deliver ROAs, considering limited incremental levers on other items .

Core performance volatile, limited levers, a concern: Q3 saw yet another softer print on core PPoP with lower NIMs (down 8bps QoQ) , which impacted NII growth (flat QoQ). NIMs were impacted by lower yields , while funding cost was relatively sticky. PNB seems to have limited levers on yield and given turning rate tables , NIM trajectory hereon could further be stretched , thus impacting core profitability. Loan growth was better than anticipate d, supported by stronger MSME and retail growth. We believe core operational performance (excluding one -offs) may still lag and thus , the road to recovery could be slightly stretched.

Recommend Accumulate with a revised TP of INR 135: PNB delivered mixed Q3FY26 , and the overall trends have been volatile . The investment argument thus relies on recovery potential than on core delivery , which we still believe has some catch -up to do. We believe improvement hereon may be contingent on persistent tailwinds. Rolling to December 2027 E, w e revise our TP to INR 135 (earlier INR 122) We maintain Accumulate and expect longer time correction .

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