ICRA gives ‘Stable’ Rating to Punjab National Bank – Know Strength and Challenges of PNB

ICRA has assigned a stable rating to Punjab National Bank, one of the largest public sector banks in India.

What ICRA said?

The capitalisation profile of Punjab National Bank remains comfortable, supported by steady internal accruals and the capital raised through a qualified institutional placement in FY2025. It is expected to remain comfortable with limited need for fresh capital infusions to meet growth requirements. However, ICRA expects the bank to continue receiving support from the Government of India, if required. Furthermore, PNB’s systemic importance in the Indian banking sector remains high with a market share of 5.9% in net advances and 6.9% in total deposits as on September 30, 2025. It is also the third largest public sector bank and the fifth largest bank in the Indian financial system in terms of net advances as on September 30, 2025.

PNB continues to show improvement in its overall asset quality, helped by a lower rate of fresh non-performing advances. With a provision coverage of 90% (excluding write-offs), the bank has seen a significant improvement in its net NPA levels and its overall solvency profile. As credit costs have come down, profitability has continued to strengthen, except for a decline in the first half of FY2026 due to a one-time deferred tax asset reversal after the transition to the new tax regime in Q1 FY2026. The bank is expected to maintain healthy internal capital generation in the near to medium term, with credit costs likely to remain under control. ICRA expects PNB to retain sufficient capital buffers above regulatory requirements, although the impact of shifting to the expected credit loss provisioning framework on capital and profitability will need to be closely watched. The management estimates that this transition could affect capital ratios by about 75–80 basis points.

Key Financials of PNB

Punjab National Bank	FY2024	FY2025	H1 FY2026
Total income	52,777	55,168	27,436
Profit after tax	8,245	16,630	6,579
Total assets (Rs. lakh crore)	15.54	18.10	18.68
CET I	11.04%	12.33%	12.75%
CRAR	15.97%	17.01%	17.19%
PAT/ATA	0.55%	0.99%	0.72%
Gross NPAs	5.73%	3.95%	3.45%
Net NPAs	0.73%	0.40%	0.36%

Strengths of PNB

The Government of India (GoI) continues to be the largest shareholder in PNB, holding a 70.08% stake as of September 30, 2025. This is lower than the 85.59% stake on September 30, 2020, due to three rounds of equity capital raising from the market—amounting to Rs 10,588 crore in FY2021 and FY2022, and Rs 5,000 crore in Q2 FY2025. Earlier, during FY2018 to FY2020, PNB and its amalgamated banks (erstwhile Oriental Bank of Commerce and United Bank of India) received Rs 55,274 crore in capital support from the GoI.

Following the merger, PNB’s market presence strengthened, with 5.9% share in advances and 6.9% in total deposits as of September 30, 2025, reflecting its high systemic importance in the Indian banking system. Although the bank has raised capital in recent years, its internal capital generation has also improved, reducing its dependence on the GoI. Even so, ICRA expects that the bank will continue to receive support from the GoI whenever necessary.

PNB’s capitalisation remains comfortable. Core equity capital (CET I) stood at 12.75% and Tier I capital at 14.41% as of September 30, 2025, compared with 11.59% and 13.63% a year earlier. While earlier capital infusion helped, the bank has been profitable from FY2021 to H1 FY2026 after significant losses in previous years which had weakened its capital base. With higher provision coverage on stressed assets, the solvency level improved to 3.68% on September 30, 2025, from 5.25% on September 30, 2024. ICRA expects this solvency improvement to continue, which will remain important from a credit perspective.

The bank is also expected to maintain strong internal capital generation to support its growth plans. Its capital position is projected to remain comfortably above the negative threshold levels. Most subsidiaries are financially stable and capable of meeting their own capital needs, though a few may require manageable support from PNB. While internal accruals are considered adequate for growth, the impact of the RBI’s transition to the expected credit loss (ECL) framework will need close monitoring. The bank’s management estimates that the new provisioning system may reduce capital ratios by 75–80 basis points, spread over the transition period up to March 31, 2031.

PNB’s operating profit fell to 1.36% of average total assets in FY2025 from 1.61% in FY2024, which was below the public sector bank average of 1.68% in FY2025. This was mainly because of lower net interest margins and reduced non-interest income. The decline continued in the first half of FY2026, with operating profit dropping further to 1.16% due to delayed transmission of policy rate cuts on loans, although this was partially balanced by lower operating costs. With better asset quality and a higher provision coverage ratio, credit costs continued to fall in FY2025 and H1 FY2026. The bank also faced a one-time impact of deferred tax asset reversal in Q1 FY2026 after shifting to the new tax regime, which sharply reduced profit after tax in Q1 FY2026 and H1 FY2026. Due to this, return on assets weakened to 0.71% (annualised) in H1 FY2026, compared with 0.99% in FY2025, though still higher than 0.55% in FY2024. ICRA expects the bank’s profitability to stay healthy going forward.

PNB has a strong deposit base, which grew 10.9% year-on-year to Rs 16.17 lakh crore as of September 30, 2025. The bank holds a 6.9% share of total deposits in the system, supported by its large network of 10,228 branches. Its current and savings account deposits formed 36.06% of total deposits, broadly matching the PSB average of 36.38%. The share of the top 20 depositors was low at 3.41% as of March 31, 2025. The bank’s granular deposits and high CASA share strengthen its liquidity and keep the cost of interest-bearing funds at 5.11% in H1 FY2026, in line with PSB averages. With a strong deposit base, wide branch network, and a comfortable credit-to-deposit ratio of 70.11%, ICRA expects PNB’s liability position to remain a key strength in supporting credit growth while maintaining solid liquidity and profitability.

Challenges for PNB

However, asset quality remains an important area to watch. The annualised fresh NPA generation rate eased to 0.72% of standard loans in H1 FY2026, compared with 0.94% in FY2025, 1.02% in FY2024, and much higher levels in earlier years. Gross NPAs improved to 3.45% as of September 30, 2025, from 4.48% a year earlier, supported by lower slippages, healthy recoveries, and write-offs. Provision coverage remained high at 90% (excluding written-off accounts), resulting in net NPAs dropping to 0.36% from 0.46%.

Even though PNB’s vulnerable loan book—represented by SMA-1, SMA-2 and restructured loans—has reduced, it is still significant relative to its core capital. The impact of macroeconomic risks, geopolitical concerns, and rising stress in the retail and MSME segments on borrower repayment ability will remain critical factors to monitor for future asset quality.