PNB share price trades at a discount to banking peers; is it worth a buy?

Punjab National Bank (PNB) stayed in the spotlight on Friday after Motilal Oswal Financial Services Ltd (MOFSL) reaffirmed its constructive view on the lender. The brokerage expects the PSU bank to maintain a steady RoA of 1 per cent in FY27 and FY28. MOFSL reiterated its 'Buy' rating on PNB with a target price of Rs 130, noting that the stock trades at a discount to private players and some public sector peers. It highlighted strong asset quality, improving cost ratios, and a consistent earnings outlook as key factors providing a margin of safety.

MOFSL met with the top management, represented by MD & CEO Shri. Ashok Chandra, to discuss the bank’s outlook on business growth, profitability, and asset quality. MOFSL has re-emphasised its constructive stance on the public sector lender, citing improvement in key operating metrics and a positive medium-term outlook.
MOFSL highlighted that PNB has reaffirmed its FY26 loan growth guidance at 11–12 per cent, with strong traction observed in the Retail and MSME segments, both recording 18 per cent year-on-year growth. Notably, MSME advances have been buoyed by cash-flow-based lending and digital initiatives, which have helped contain NPAs at approximately 1 per cent.

The corporate sanction pipeline remains robust at around Rs 1.3 lakh crore, although disbursements have been modest. MOFSL estimated PNB to deliver a 12.8 per cent CAGR in the loan book over FY25-28.

A decisive pivot towards the RAM (Retail, Agriculture, MSME) segment is underway, with the mix expected to rise to 57–59 per cent from the current 56.6 per cent. Management is actively rebalancing away from low-yield IBPCs while paring down certificates of deposit (CDs) on the funding side. The bank continues to prioritise high-yielding, granular segments, reinforcing portfolio resilience.

PNB’s net interest margin (NIM) is guided to remain broadly stable in the near term, with management expecting a bottom in 2QFY26 and sequential improvement from 3Q onwards. The reduction in CDs and rundown of low-yielding IBPCs are expected to structurally support blended yields and ease funding costs, even if reported retail growth appears temporarily muted.

In terms of profitability, the cost-to-income (C/I) ratio, currently at approximately 55 per cent, is projected to drop below 50 per cent over the next five years. This is expected to be driven primarily by income acceleration from fee-based streams, including cash management services (CMS), supply chain finance, and an expanded credit card business. These initiatives are anticipated to lift operating income structurally and enhance operating leverage.

The brokerage also pointed to PNB’s asset quality metrics, which have shown continued resilience. MOFSL expects the asset quality ratio to improve, with GNPA estimated to decline to 3.1 per cent in FY26 and NNPA to 0.3 per cent. GNPA is likely to trend further down at 2.5 per cent and net NPA at 0.2 per cent with best-in-class PCR at 93 per cent in FY28E.” Management guided credit costs at 20–30 basis points, among the lowest in the sector, and does not anticipate additional provisioning buffers over the next three years.

Other highlights from the discussion included PNB’s planned divestment of a 10 per cent stake in Canara HSBC Life, expected to generate gains of INR 9–10 billion. The bank is set to benefit from Rs 15,000 crore in additional liquidity due to CRR cuts between September and December 2025, and maintains minimal exposure to SMEs affected by US market tariffs.