Punjab & Sind Bank Q1 FY2025 Concall Summary

Key Takeaways

• NIM improved to 2.69% as yield on advances rose and deposit costs eased; management expects NIM to hold steady in the near term, with the LCR circular impact assessable only after April implementation.
• Asset quality strengthened materially: Gross NPA fell 208 bps to 4.72% and net NPA to 1.59%, driven by recoveries and slippage containment at ₹276 crores, less than two-thirds of the prior year's level.
• A deliberate, multi-year balance-sheet transformation is underway: the bank is reversing a legacy 55% corporate mix toward RAM, a shift that requires building systems, underwriting, and digital infrastructure before growth can accelerate sustainably.
• Cost-to-income ratio at 69.67% reflects the wage revision impact that knocked the ratio off its earlier 64-65% trajectory; management targets a gradual reduction to 68-69% by March and 60-62% over 2-3 years.
• What to watch next quarter: whether the ₹6,000 crore corporate pipeline converts without margin dilution, the pace of MSME STP journey launches, and any deposit-cost movement as the bank's special-rate products reprice.

Margin & Profitability Trajectory

• NIM drivers: Yield on advances improved to 8.70% while cost of deposits declined from 5.71% to 5.64%, producing the 2.69% NIM. The bank intends to keep NIM between 2.75% and 2.8% for the March '25 year-end.
• Deposit cost plateauing: The quarter-on-quarter increases seen in the prior year are expected to plateau now; special-rate products of 333, 444, and 660 days have been repriced at current levels and the bank expects to hold there, though a marginal positive bias in higher cost may persist for one or two quarters.
• LCR draft circular risk: Management estimates a 10-12% impact from the RBI's draft LCR norms, which require banks to keep an additional cushion of 5-15% runoff factor; the effect on NIM can be gauged only after one or two quarters once implementation begins from April.
• Cost-to-income ratio: The wage revision pushed the ratio off its earlier 64-65% level to 69.67%; the bank is working to bring it down gradually, targeting below 69% by March and 60-62% over the next 2-3 years.
• Return targets: Return on assets targeted at 0.65-0.75% and return on equity at 9-10%, both contingent on the cost-to-income improvement and sustained NIM.

Saha: "if you remember, if we go back three to four years, my cost to income ratio was as high as 75% and we were able to bring it down to 64% - 65%. However, we had the wage revision impact and we were unable to supplement with the growth trajectory. That's why this has again gone off track a bit but again. Now we are slowly and slowly bringing it down."

Balance-Sheet Transformation

• The RAM pivot: Four years ago the bank's mix was 55% corporate and 45% RAM; after two large NBFCs went down, the bank is deliberately reversing that mix toward RAM, which requires creating proper structures, personnel, monitoring, and digital infrastructure before growth can accelerate.
• Corporate credit slowdown is intentional: Corporate growth of just 2.9% YoY was a conscious decision to balance toward RAM for better yields; the bank is not averse to corporate credit and holds a pipeline of approximately ₹6,000 crores for the year.
• MSME growth acceleration: MSME growth jumped to 13% from 6-7% earlier, driven by co-lending traction, the TREDS platform portfolio of ₹800 crores, and direct assignment opportunities for retail and MSME portfolios.
• CD ratio constraint: The bank cannot improve its CD ratio faster because it needed to create proper systems and underwriting processes first; legacy issues include retail NPA above 3%, lack of an effective credit delivery structure, and the need to avoid repeating the 2018-21 balance-sheet shrinkage.
• Agri exposure decline: Agri exposure reduced roughly 2.5% QoQ because the bank is concentrated in Punjab and Haryana with seasonal fluctuations in KCC accounts; the bank is moving toward tractor equipment financing, co-lending in agriculture, and MFI financing to cover priority-sector targets.

Saha: "For a bank, which four years back was having corporate credit of 55% and RAM percentage of 45%, and suddenly if two big NBFCs go down in the market dynamics, the balance sheet goes topsy-turvy for the bank as a whole. We cannot go into that trajectory again."

Growth & Loan Book

• Overall business growth: Business grew 7.10% YoY, with deposits up 5.59% and advances up 9.24%, reflecting the shift toward RAM-based credit growth.
• Loan growth guidance: 12-14% for the current year and 14-16% for the next year, with the base at approximately ₹88,000 crores. Management stated that a ₹1 lakh crore advance book by March '25 is not impossible if all things go well.
• Deposit mix improvement: Retail term deposits grew 10.15% in the June quarter, helping reduce the bulk deposit ratio from approximately 22-23% to 16% over two years.
• New current account products have been created to aid deposit mobilization, and the bank is building a back-office structure for CASA mobilization, expected in 6-8 months.
• Branch and BC expansion: The bank plans to add 100 branches this fiscal year, focusing on semi-urban and urban areas outside the northern belt (South, East, Central, West, Northeast), and to expand its BC network to 4,500 in the current year and 6,000 by March '26.

Saha: "I can easily increase my book at 20% at this point of time with the leads that I have, but is that sustainable?"

Asset Quality & Collections

• GNPA reduction: Gross NPA fell 208 bps to 4.72% and net NPA to 1.59%, driven by recovery efforts and slippage containment.
• Slippage containment: Slippages were held at ₹276 crores compared to ₹451 crores in the prior-year quarter, with collection efficiency paying dividends particularly on agriculture and MSME fronts.
• Recovery momentum: The bank's focus on collection efficiency is the primary driver behind the asset-quality improvement, alongside the broader shift toward RAM assets with better underwriting.

Digital, Technology & Partnerships

• Finacle 10 upgrade completed, enabling a robust platform for the PSB-UNIC app's value-added services including demat, SIP mutual fund investment, government PPF and Sukanya Samriddhi account opening, free credit score, and CKYC number download.
• Digital launch by August: The bank will go digital in 4-5 areas with what management describes as the most updated system in the industry, targeted for 15th or 31st August.
• IT investment plan: An ₹800 crore IT investment plan spread over three years has been approved, covering a state-of-the-art call center (6 months), a centralized trade finance module (8-10 months), a CASA back-office structure (6-8 months), and a data warehouse project (approximately 3 years).
• MSME STP journeys will be in the market within two to three months, aimed at accelerating MSME credit delivery.
• Partnerships: The bank signed an MOU with the Indian Army for defense salary accounts, tied up with Maruti Suzuki for digital car loans, fortified a mutual fund fintech partnership, and is collaborating with IIM Amritsar, ISB Mohali, and Punjab Agricultural University for agri-innovation and financial inclusion.
• CXO hires: The bank has taken CXOs from the market and is increasing the capacity of top executives with training in India and abroad.

Saha: "Transformation goes through pain and if this transformation is to be a sustainable one, we need to create proper systems first, before we go into the big league."

Capital Raise

• Board-approved capital plan: Total capital raise of ₹10,000 crores approved, comprising ₹2,000 crores via QIP, ₹5,000 crores via infrastructure bonds, and ₹3,000 crores via AT-1/Tier 2 bonds; all internal approvals are in place.
• Sequencing: The bank will first try to go to the market with the infrastructure bond issuance.
• QIP timing: The QIP is a one-year project; the bank will hit the market whenever it is in a position to take all other approvals, with timing discussed with merchant bankers once they are on board.
• Market crowding risk: Per an analyst's math, PSB, IOB, Bank of Maharashtra, and Central Bank will all hit the market in a similar time zone, creating crowding; management acknowledged timing is key but did not address differentiation from other PSU banks.

Guidance & Commitments

Key Metrics