Punjab National Bank — Q2 FY26 earnings call

Call held 18 Oct 2025

Management summary

Punjab National Bank delivered a strong Q2 FY26, marked by a 14% Y-o-Y increase in net profit to INR4,904 crores and significant asset quality improvement with GNPA at 3.45% and NNPA at 0.36%. The bank achieved robust credit growth across RAM segments and maintained a high PCR of 96.91%. While NIM saw a slight Q-o-Q compression, management expects a rebound from Q3, supported by deposit repricing and continued focus on digital initiatives and operational efficiency.

Highlights

  • Net Profit increased 14% Y-o-Y to INR4,904 crores in Q2 FY26, driven by strong operating profit growth of 5.46% Y-o-Y to INR7,227 crores.

  • Asset quality showed significant improvement with Gross NPA reducing to 3.45% and Net NPA to 0.36% as of September 2025.

  • Provision Coverage Ratio (PCR) reached 96.91%, well above the 96% guidance for FY26.

  • Global gross business grew 10.6% Y-o-Y to INR27.87 trillion, with global advances growing 10.1% and deposits 10.9%.

  • Retail, Agri, and MSME (RAM) advances grew robustly (18% for Retail excl. IBPC, 13% for Agri, 18.6% for MSME), increasing RAM share to 56.8% of domestic advances.

  • Cost-to-Income ratio improved to 51.20% in Q2 FY26 from 54.58% in Q2 FY25, reflecting efficiency gains.

Concerns

  • Global Net Interest Margin (NIM) declined Q-o-Q to 2.60% in Q2 FY26, though management anticipates improvement from Q3 onwards.

  • Other income decreased to INR1,685 crores in Q2 FY26 from INR2,250 crores in Q1 FY26, primarily due to lower recovery in written-off accounts (INR854 crores vs INR1,200 crores).

  • Fresh slippages increased slightly Q-o-Q to INR1,955 crores in Q2 FY26 from INR1,886 crores in Q1 FY26, though still within guidance.

Key financials

  1. Net Profit ₹4,904 Cr +14%YoY
  2. Operating Profit ₹7,227 Cr +5.5%YoY
  3. Global Advances Growth 10.1% +10.1%YoY
  4. Global NIM 2.6% -3.7%QoQ
  5. Gross NPA 3.5% -23%YoY
  6. Net NPA 0.36% -21.7%YoY
  7. ROA 1.1% +2.9%YoY

What they filed

Q1 FY27: revenue up 3.1%, net profit up 169.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue30,447 31,895 32,523 32,572 32,513 +7%32,889 +3%32,798 +1%33,589 +3%
Net profit4,739 4,811 5,011 2,167 5,121 +8%5,577 +16%5,602 +12%5,835 +169%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • RAM Advances
    56.8% Share of Domestic Advance
  • Retail Advances (excl. IBPC)
    18% Growth
  • Agriculture Advances
    13% Growth
  • MSME Advances
    18.6% Growth
  • Corporate Loan Book
    7.9% Y-o-Y Growth3% Q-o-Q Growth

Capital allocation

high confidence
  • M&A Canara HSBC Life Divestment · Closed

    Reduction of stake through IPO

    INR950 crores gain from 10% dilution, to be factored in Q3 FY26.

    Third, your question about Canara HSBC Life. In fact, we are getting about INR950 crores out of this 10% dilution. Nothing has been factored in the September quarter, all these things, we are going to factor in the Q3.
  • Liquidity Liquidity disclosed Capital adequacy is 17.19% as on 30th September 2025, with CET1 at 12.75%, Tier 1 at 14.41%, and Tier 2 at 2.78%.
    As far as capital is concerned, our capital adequacy is 17.19% as on 30th September 2025 compared to 16.36% as on 30th September 2024 and 17.50% as at 30th of June 2025. Our CET1 is at 12.75%, Tier 1 14.41%, and Tier 2 is at 2.78%, which is well above the regulatory requirements.

Guidance & targets

Profitability

  • NIM Improvement Profitability · Q3 and Q4 FY26 · High confidence at least 5 basis points in Q3, 10+ basis points in Q4
    On conservative estimate, I can tell you that at least the 5 basis point improvement, definitely, it will happen in the Q3 and around 10-plus basis points in the Q4 because by that time, my entire the 1-year deposit will be repriced, and we will have the benefit of the entire thing in the full financial year.

    — Ashok Chandra

  • ROA Profitability · Q3 and Q4 FY26 · High confidence around 1.10%
    And somewhere I think in the Q3 and Q4, it should be somewhere around 1.10% definitely we should be in a position to touch that.

    — Ashok Chandra

Credit Growth

  • Overall Credit Growth Credit Growth · FY26 · High confidence 11% to 12%
    With all those things, we have already given a direction of 11% to 12% in the credit book and 100% we are going to achieve this.

    — Ashok Chandra

Portfolio Mix

  • RAM Share of Domestic Advances Portfolio Mix · Near term · High confidence around 57% to 58%
    And we are putting a lot of focus on the RAM book and this quarter itself, the RAM share is 56.8%, which we are going to improve to around 57% to 58%.

    — Ashok Chandra

  • RAM Share of Domestic Advances Portfolio Mix · Long run · Medium confidence 60%
    So in the long run, our goal is that our RAM percentage should touch 60% and corporate loan book should come down to 40%.

    — Ashok Chandra

Asset Quality

  • Total Recovery Asset Quality · FY26 · High confidence INR16,000 crores
    With all those things, sir, we have given the yearly guidance of INR16,000 crores of total recovery to happen, we are on track.

    — Ashok Chandra

  • Recovery in Q3 Asset Quality · Q3 FY26 · Medium confidence around INR4,500 crores
    And in this particular quarter, Q3, I'm expecting somewhere around INR4,500 crores of recovery should happen in the entire system now.

    — Ashok Chandra

  • Slippage Ratio Asset Quality · FY26 · High confidence below 1%
    Our guidance for slippage ratio was to remain below 1% in FY 2026 and we are well within our guidance level at slippage ratio for the Q2 for this year has been on annualized basis is 0.71%.

    — Ashok Chandra

  • Net NPA Asset Quality · FY26 · High confidence below 0.35%
    And the guidance for this entire year is 0.35%. And definitely, we are going to do that. We will be well below 0.35%.

    — Ashok Chandra

  • Gross NPA Asset Quality · FY26 · High confidence below 3%
    Gross NPA, we are at 3.45% and the guidance for this entire year, what we have given is below 3%, and we are going to achieve that guidance.

    — Ashok Chandra

Capital Adequacy

  • ECL Transition Impact on CRAR Capital Adequacy · Implied upon transition · High confidence 75 to 80 basis points
    And overall, all 3 sectors put together rough estimate is in the range of around 75 to 80 basis point impact will come on our CRAR.

    — Ashok Chandra

Treasury Income

  • Minimum Treasury Gain Treasury Income · Every quarter · Medium confidence INR1,500 crores
    But somewhere definitely around INR1,500 crores, that is the minimum treasury gain, we will be holding it.

    — Ashok Chandra

Digital Initiatives

  • Digital Annual Budget Digital Initiatives · FY26 · High confidence INR3,500 crores
    Digital, yes, for this year, financial year, both capex and the revenue expenditure put together is INR3,500 crores is the budget for this financial year.

    — Ashok Chandra

What to watch in Q3 FY26

NIM Improvement

Q3 and Q4 FY26
Current Global NIM 2.60% (Q2 FY26)
Target At least 5bps improvement in Q3, 10+bps in Q4

Why it matters

NIM is a key profitability driver for banks; its recovery is crucial for sustained earnings growth.

On conservative estimate, I can tell you that at least the 5 basis point improvement, definitely, it will happen in the Q3 and around 10-plus basis points in the Q4 because by that time, my entire the 1-year deposit will be repriced, and we will have the benefit of the entire thing in the full financial year.

Risks & concerns

  • NIM Compression

    medium

    Global NIM fell Q-o-Q to 2.60% in Q2 FY26, though management expects improvement from Q3 due to deposit repricing.

    Management acknowledged

  • Volatility in Other Income

    medium

    Other income declined in Q2 FY26 due to seasonal patterns in fee-based income and lower recovery from written-off accounts.

    Management acknowledged

  • Impact of ECL Transition

    medium

    Estimated 75-80 basis point impact on CRAR from the upcoming ECL transition, though management states they are well-prepared and have sufficient cushion.

    Analyst acknowledged

  • Slight Increase in Fresh Slippages

    low

    Fresh slippages increased slightly Q-o-Q to INR1,955 crores, but management emphasized it's within the annual guidance of below 1%.

    Analyst downplayed

Q&A highlights

8 direct
Credit Growth Target Achievement Direct
With all those things, we have already given a direction of 11% to 12% in the credit book and 100% we are going to achieve this.

Analyst questioned the feasibility of achieving the 12% credit growth target given the remaining time in the fiscal year, prompting management to reaffirm commitment and highlight sanctioned but undisbursed credit lines.

Asked by Ashok Ajmera

Impact of Canara HSBC Life IPO Reduction Direct
In fact, we are getting about INR950 crores out of this 10% dilution. Nothing has been factored in the September quarter, all these things, we are going to factor in the Q3.

Analyst inquired about the financial impact of the stake reduction in Canara HSBC Life, revealing a significant gain to be recognized in the next quarter.

Asked by Ashok Ajmera

Decline in Other Income and Fee-Based Income Direct
See, first quarter always, there will be higher income will be there in the noninterest income and that too in the fee-based income category, because the processing charges and all the yearly charges which we collect, the -- all these things comes in the first quarter of every financial year.

Analyst sought clarification on the reasons for the decline in other income and fee-based income, with management attributing it to seasonal collection patterns in Q1.

Asked by Ashok Ajmera

NIM Outlook and Stabilization Direct
On conservative estimate, I can tell you that at least the 5 basis point improvement, definitely, it will happen in the Q3 and around 10-plus basis points in the Q4 because by that time, my entire the 1-year deposit will be repriced, and we will have the benefit of the entire thing in the full financial year.

Analyst questioned the bank's NIM trajectory given a Q-o-Q fall, and management provided specific guidance for NIM improvement in the coming quarters due to deposit repricing.

Asked by Mahrukh Adajania

IL&FS Account Upgrade and Provision Reversal Direct
Yes. That account has been upgraded, but the provision is not yet released. I think we may take this release in the Q3 or Q4.

Analyst asked about the IL&FS account upgrade and associated provision reversal, clarifying that while the account moved to standard assets, the provision release is deferred to future quarters.

Asked by Mahrukh Adajania

Impact of ECL Transition on CRAR Direct
And overall, all 3 sectors put together rough estimate is in the range of around 75 to 80 basis point impact will come on our CRAR.

Analyst inquired about the expected impact of the ECL transition, and management quantified the potential CRAR impact while assuring preparedness.

Asked by Ashlesh Sonje

RBI Circular on M&A Finance Direct
That is a very good scope for all the leading public sector banks in the country -- leading banks in the country. And I had just done one calculation that last year, in the '24 -- '23, '24 financial year total INR10 lakh crores of the merger and acquisition has happened. And in that, if you take the 40% debt component, that comes to the INR4 lakh crores even if conservative, I estimate that 30% of that debt will be funded by the bank like ours, that amount comes to INR120,000 crores of scope that is there in the merger and acquisition funding now.

Analyst asked about PNB's plans regarding the new RBI circular on M&A finance, revealing management's view of a significant market opportunity (INR120,000 crores) and intent to collaborate with other large banks.

Asked by Vansh Solanki

Unsecured Lending and Risk Management Direct
Unsecured market, bank is not very active. We are doing unsecured lending only to the -- there are 3 segments. One is that personal loan and in the personal loan also, it is restricted to those people whose salary comes to the bank. So it is the classification is unsecured, but it is fully protected, and we don't see any much challenge in that particular segment.

Analyst questioned the bank's approach to unsecured lending amidst credit growth, with management clarifying a cautious strategy focused on protected segments like salaried personal loans, education loans with government guarantees, and credit cards.

Asked by Sucrit Patil

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Detailed narrative

Strong Financial Performance in Q2 FY26

Punjab National Bank reported a robust Q2 FY26, with net profit increasing by 14% year-on-year to INR4,904 crores. This was supported by a 5.46% Y-o-Y growth in operating profit, reaching INR7,227 crores. The bank's Return on Asset (ROA) improved to 1.05% from 1.02% in the same period last year, and Return on Equity (ROE) stood at 17.95%. The cost-to-income ratio also saw an improvement, reducing to 51.20% from 54.58% in Q2 FY25, reflecting enhanced operational efficiency.

Asset Quality Improvement and Provisioning

The bank demonstrated significant improvement in asset quality, with Gross NPA reducing to 3.45% as of September 2025 from 4.48% a year ago and 3.78% in June 2025. Net NPA also improved to 0.36% from 0.46% in September 2024. The Provision Coverage Ratio (PCR) is strong at 96.91%, exceeding the bank's guidance of over 96% for FY26. Total fresh slippages for Q2 FY26 were INR1,955 crores, with an annualized slippage ratio of 0.71%, well within the FY26 guidance of below 1%.

Credit Growth and Portfolio Mix Strategy

Global gross business expanded by 10.6% Y-o-Y to INR27.87 trillion, with global advances growing 10.1% to INR11.7 trillion. The bank is strategically enhancing its RAM (Retail, Agri, MSME) portfolio, which constitutes 56.8% of domestic advances, up from 55.8% in September 2024. Retail advances (excl. IBPC) grew 18%, Agriculture 13%, and MSME 18.6%. The corporate loan book also showed a 7.9% Y-o-Y growth and 3% Q-o-Q growth, with a significant sanctioned credit pipeline of INR1.78 lakh crores yet to be disbursed.

NIM Outlook and Deposit Repricing

Domestic NIM for Q2 FY26 stood at 2.72%, and global NIM at 2.60%. While there was a Q-o-Q decline of approximately 10 basis points in global NIM, management anticipates an improvement from Q3 onwards. This expected improvement is driven by the ongoing repricing of deposits, with at least 5 basis points improvement projected for Q3 and over 10 basis points for Q4. The bank's cost of deposits has substantially come down, and 70-80% of the 1-year term deposits are expected to be repriced in Q3.

Digital Transformation and Financial Inclusion

PNB is actively pursuing digital transformation, with digital transactions accounting for nearly 95% of total transactions. UPI transactions through PNB One grew 53% this fiscal year, and WhatsApp banking users increased by 92% to 83.4 lakhs. The bank has onboarded 5.42 lakh CBDC customers and processed 84.18 lakh CBDC transactions. A digital budget of INR3,500 crores is allocated for FY26, with 25-30% already spent in H1, focusing on initiatives like a GenAI-based chatbot and revamping internet/mobile banking applications.

Capital Adequacy and Shareholder Value

The bank's capital adequacy ratio stood at a healthy 17.19% as of September 2025, compared to 16.36% a year ago. CET1 was 12.75%, Tier 1 at 14.41%, and Tier 2 at 2.78%, all well above regulatory requirements. The tangible book value per share significantly improved to 95.92 as of September 2025 from 79.18 in September 2024. The bank expects a gain of INR950 crores from the 10% dilution of its stake in Canara HSBC Life, which will be recognized in Q3 FY26.

Other Income and Treasury Performance

Other income for Q2 FY26 was INR1,685 crores, a decrease from INR2,250 crores in Q1 FY26. This was primarily due to lower recovery from written-off accounts, which stood at INR854 crores compared to INR1,200 crores in the previous quarter. However, the bank maintained a consistent treasury income, reporting around INR1,790 crores in Q2 FY26, similar to INR1,800 crores in Q1 FY26. Management expects a minimum treasury gain of INR1,500 crores per quarter going forward.

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