PNB Hikes Lending Rates by 5 bps Across All Tenors

On Thursday, the state-owned Punjab National Bank (PNB) announced a marginal increase in its Marginal Cost of funds-based Lending Rate (MCLR) by 0.05% or 5 basis points across all tenors, leading to higher costs for most consumer loans.

According to a regulatory filing by PNB, the benchmark one-year MCLR, which determines the pricing for most consumer loans such as auto and personal loans, will now be 8.90%, up from the previous 8.85%. The three-year MCLR has also increased by 5 basis points to 9.20%. Other tenors, including one month, three months, and six months, will have rates ranging from 8.35% to 8.55%. The overnight tenor MCLR has been adjusted to 8.30%, compared to the previous 8.25%.

These new rates will be effective from August 1, 2024. In a similar move, Bank of India, another public sector lender, raised its one-year MCLR by 5 basis points to 8.95%, while keeping rates for other tenors unchanged.

MCLR plays a vital role in determining the borrowing costs for both individuals and businesses in India. It represents the minimum interest rate a bank can charge on loans, calculated by factoring in the bank’s cost of funds, operational costs, and a profit margin.

On June 1, 2024, PNB had already raised its MCLR by 5 basis points for tenors spanning from three months to three years.

On July 29, PNB reported its highest-ever quarterly standalone profit of ₹3,252 crore, driven by increased interest revenue and a reduction in bad loans. The quarterly net profit saw a year-on-year increase of 159%. Net Interest Income (NII) also rose significantly by 10.2%, reaching ₹10,476.2 crore, up from ₹9,504.3 crore in the same period last year.

Analysts at Jefferies have set a target price of ₹150 for PNB, indicating a potential upside of approximately 20%. They highlighted that despite strong asset quality in Q1FY25, net profit was slightly below estimates due to higher operating expenses related to Priority Sector Lending Certificates (PSLCs). Jefferies anticipates continued earnings rebound, with a lower slippage ratio of 0.8% and low credit costs expected for the next 1-2 years. They forecast a Return on Assets (RoA) of 0.9% by FY26 and maintain a “Buy” rating.

Kotak pointed out that PNB’s asset quality remains stable, with a net Non-Performing Loan (NPL) ratio of 0.6% and a slippage ratio of 0.8%. Advances grew by 12% year-on-year, driven by retail and agricultural sectors. However, Kotak finds the current valuation of PNB shares high and has set a target price of ₹110.

Motilal Oswal raised their Earnings Per Share (EPS) estimates by 5.6% for FY25 and 0.8% for FY26, driven by lower provisions, strong NII, and stable margins. They predict an RoA of 1.0% and a Return on Equity (RoE) of 14.5% by FY26, setting a target price of ₹135 for PNB.

The shares of Punjab National Bank have shown positive returns over various time intervals. In the last month, the stock provided a return of 6.61%. Over the past six months, it showed strong momentum with returns of 38.80%, reflecting robust performance. Year-to-date, the stock has recorded impressive growth of 78.92%. Over the past year, the shares have demonstrated consistent strength, with returns exceeding 80%.