Why is PNB near its 8-month low after slipping 7% in 2 days? Details here: Punjab National Bank share price

Punjab National Bank (PNB) shares hit a nearly eight month low of Rs 103.65, after falling 4 per cent on the BSE in Wednesday’s intra-day trade amid heavy volumes. 

On Monday, the company, in an exchange filing, said its board has approved and adopted the preliminary placement document along with the application form for the QIP issue. The bank may offer a discount of not more than 5 per cent on the floor price so calculated for the issue, it said.

At 12:17 PM, PNB was trading 3 per cent lower at Rs 104.85, below the floor price it has set for the QIP. In comparison, the BSE Sensex was trading 0.12 per cent down around the same time.

The company’s stock is trading at its lowest level since January 29, 2024. It was down 27 per cent from its 52-week high of Rs 142.90 that it hit on April 30. The average trading volumes on the counter jumped 1.5 times, with a combined 48.38 million shares changing hands on the NSE and BSE.

The bank has already achieved a return on assets of 0.82 per cent in Q1FY25 (under the old tax regime) and intends to increase it to 1 per cent in the medium term, which clearly signifies the improving internal accruals of the bank over the past two years (FY24: 0.54 per cent, FY23: 0.18 per cent).

However, it is pertinent to sustain this trajectory through the cycle. Even after factoring in elevated provisioning requirements in the near term (even after net NPA of 0.6 per cent), India Ratings and Research (Ind-Ra) believes the capital buffers would remain significantly higher than the regulatory requirements, owing to its increasing internal accruals.

Furthermore, PNB had raised Rs 5,590 crore through two qualified institutional placements in FY21 and FY22. This, the agency believes, brings incremental comfort with respect to the bank’s capital raising ability.

According to Ind-Ra, while PNB’s capital base is adequate for now, there is a need to continuously grow advances and build buffers ahead of the implementation of expected credit loss norms. This will continue to be a key monitorable, it added.

PNB’s asset quality also continues to witness a sharp improvement as recoveries and w-off continued to stay at higher levels. Provision coverage ratio (PCR) thus improved further to 88 per cent, while asset quality ratios also improved.

Special Mention Account (SMA) overdue (with loans over Rs 5 crore) remained under control at 0.16 per cent of domestic loans, while the bank continues to guide robust recoveries at 2x of slippages.

It guided gross non-performing assets (GNPA) ratio to decline to around 4 per cent (from the earlier guidance of 5 per cent), while credit cost is guided at 0.5 per cent (from earlier guidance of 1 per cent), Motilal Oswal Financial Services said in its result update for the company.

Meanwhile, technical analysts at JM Financial Institutional Equities, said the BJP’s victory in the Lok Sabha election 2024 for a third consecutive term failed to cheer the PSU sector, particularly in the banking space.

The PSU Bank index (NSEPSBK) fell from a high of 8,053 on June 3 to a low of 6,503 on September 11, representing a decline of around 19 per cent over 3.5 months.

The brokerage firm believes this significant drop offers an opportunity to re-evaluate the sector, with expectations that the PSU Bank index is more likely to outperform the Nifty in the future.