Recommendation from Bank - Public Sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

Punjab National Bank : INDIA'S FIRST SWADESHI BANK

HERE IS WHY
✓Asset quality is anticipated to remain positive in 2024-25
✓Bank has achieved its highest net interest income
✓Net profit for the Q2FY24 rose by 385.14 per cent

I ndian banks have been resilient to global downturns. The banking sector reported deposits of approximately USD 2.2 trillion and loans of around USD 1.67 trillion at the end of FY23, resulting in a creditdeposit ratio of 75.8 per cent. Scheduled commercial banks (SCBs) reported a 15.4 per cent credit growth in FY23, driven by personal loans, loans to the services sector, and agriculture and allied activities. 

Asset quality is anticipated to remain in a positive trajectory in 2024-25. And, the proportion of weak loans will decrease to 3-3.5 per cent of gross loans by March 31, 2025. This improvement is attributed to structural enhancements, including robust corporate balance sheets, more stringent underwriting standards, and enhanced risk-management practices. Given the resilience of our public system banking and the significant growth potential in the future, our recommendation for this issue of Low price is Punjab National Bank.

Punjab National Bank, India's first Swadeshi Bank, was established in 1895 and was the first bank managed by Indians with Indian capital. The financial year 2019-20 saw the amalgamation of the Oriental Bank of Commerce and United Bank of India with Punjab National Bank. The bank's brand image and trust have grown, reflecting its growing customer base and business graph. The bank focuses on qualitative business growth, recovery, and arresting slippages. Its journey towards digitalization continues through constant innovation and upgradation of products and services. The bank's business area includes deposits, loans, insurance, government business, agriculture banking, and financial inclusion.

For the quarter ending September 2023, the bank has achieved its highest net interest income, operating profit, and net profit in the last 14 quarters after amalgamation. The bank's gross business grew by 11.26 per cent, with deposits increasing by 9.7 per cent and gross advances growing by 13.43 per cent. The bank also saw 4.32 per cent growth in savings accounts and 2.36 per cent in overall CASA. The gross NPA reduced to ₹65,000 crore while the net NPA decreased to ₹13,000 crore. The bank has no plans to monetize subsidiaries and has maintained a CET capital of 10.23 per cent. The bank is confident in raising deposits and is focusing on increasing other income and improving fee income. It expects a reduction in NPA provisions and increased profitability from recoveries.

Talking about the bank’s financials, In Q2FY24 on a consolidated basis the bank’s total income grew by 28.19 per cent YoY to ₹29,857.05 crore from ₹23,291.70 crore in the corresponding quarter last year. Total interest earned for the same quarter increased by 30.45 per cent to ₹26,857.70 crore from ₹20,587.91 crore. The net profit for the Q2FY24 rose by 385.14 per cent YoY to ₹1,764.54 crore compared to ₹363.72 crore from the same quarter the previous year. While sequentially net profit has increased by 45.73 per cent from ₹1,210.82 crore. 

Shares of the bank are currently trading at a PB of 1.12x compared to the industry's 1.11x. Higher PB could be attributed to its stronger growth prospects and superior profitability. In the last three years, the bank has delivered an average ROE of 3.57 per cent and a ROCE of 4.46 per cent. The RoA of the bank stood at 0.24 per cent. Taking into account the bank business and its market, we recommend BUY.