Punjab National Bank (PNB) has delivered impressive Q1 results, marked by a substantial 159% year-on-year increase in profit, driven by a sharp reduction in provisions and robust recoveries. The bank’s gross non-performing assets (NPAs) ratio has significantly improved, and its guidance for FY25 now forecasts a gross NPA ratio of 4%, down from the previous estimate of 5%.

Additionally, PNB has reduced its credit cost guidance for the current year to 0.5% from 1%, reflecting anticipated improvements in recoveries and fewer new slippages. The bank also lowered its capital raising plan for FY25 to Rs 5,000 crore from Rs 7,500 crore, while maintaining its net interest margin (NIM) guidance at 2.9-3.0%.

However, despite these positive developments, analysts express caution due to the bank’s tepid return ratios, which could limit stock rating upgrades.

MOFSL noted that PNB’s results were underscored by a significant drop in provisions. While net interest income (NII) met expectations and NIM slightly contracted, the bank’s profit before provisions and contingencies (PPoP) missed expectations slightly due to higher operating expenses related to Priority Sector Lending Certificates (PSLC). Nonetheless, advances grew robustly, and the management aims to bolster its share in the Retail, Agriculture, and MSME (RAM) portfolio, which is expected to support margins. The asset quality continues to improve with high recoveries and write-offs, pushing the provision coverage ratio (PCR) up to 88%.

Following these results, MOFSL has increased its earnings estimates for PNB by 5.6% for FY25 and 0.8% for FY26, driven by lower provisions, healthy NII, and stable margins. They have revised their target price to INR 135 from INR 130 and maintained a Neutral rating.

Meanwhile, Nirmal Bang Institutional Equities has also raised its target price for PNB to INR 124 from INR 120, based on 1.1 times the June 2026 adjusted book value (ABV). This valuation represents a 78% premium over the past five-year average multiple of 0.62 times and reflects an expected earnings CAGR of 40.5% from FY24 to FY26, supported by a 12.1% loan CAGR, stable margins, and improving operating expenses and credit costs. Despite these positive indicators, Nirmal Bang maintains an ‘Accumulate’ rating due to the still modest return ratios.