Punjab & Sind Bank Q2 FY2025 Concall Summary

Key Takeaways

• Profit surge on NII and fees: Net profit rose 27% YoY to ₹240 crores, powered by 29% NII growth and a 36% jump in core fee income, while the cost-to-income ratio plunged 958 bps.
• NIM expanded 38 bps on a deliberate mix shift: The bank is churning its corporate book from low-yield to high-yield assets and pushing the RAM segment past 54%, which lifted advances yields and drove the margin improvement.
• Asset quality improved sharply, slippages contained: Gross NPA fell 202 bps to 4.21% and the slippage ratio hit just 0.28%, backed by a collection efficiency turnaround from ~60% to nearly 98%.
• CASA remains the open wound: The ratio slipped to 30.43% and the cost of deposits ticked up sequentially; management calls its geographic footprint a structural handicap and is betting on digital and MSME drives to fix it.
• What to watch next quarter: Whether the ₹2,000 crore QIP prices this quarter or next, the pace of RAM’s march toward the 56% target, and any sign that the promised digital transformation moves from teaser to tangible product.

Profitability Drivers: NII, Fees & Operating Leverage

• NII growth of 29% was the headline engine, fueled by both volume (11% advances growth) and a deliberate yield upgrade as the bank rotated out of low-yielding corporate assets into higher-yielding RAM and churned its corporate book.
• Core fee income surged 36% YoY (26% sequentially) on what management called significant effort; treasury income also contributed to the ₹359 crore non-interest income pool given favorable market dynamics.
• Cost-to-income collapsed 958 bps to 62.82%, addressing a metric management itself flagged as historically challenging; the improvement came from operating leverage on the revenue surge rather than cost-cutting alone.
• Treasury income is expected to moderate in Q3 as benchmark yields may soften, and the bank is preparing to compensate through further fee income growth and recovery from written-off accounts, where it claims a strong pipeline.

Saha: "The collection efficiency of the Bank was overall, was hovering around 60% 2.5 years back or 3 years back and that has moved to 97.82% in 30th September, overall, I am saying."

The Great Corporate-to-RAM Rotation

• RAM now 53.86% of advances, up 317 bps YoY, with a stated target to cross 56% by March; the segment grew 18%+ and carries a yield above 9.5%, well ahead of the corporate book.
• The rationale is defensive as much as offensive: the bank’s corporate portfolio once sat at ~55% and four or five NBFC/corporate failures caused serious damage; for a bank of its size and capital ratios, concentration in corporate is seen as imprudent.
• Corporate churning is active and confrontational: management has told large corporates to raise pricing to a specified level or prepay their loans, and will continue replacing low-yield corporate assets with renewables and LRD exposures that offer better yields and security.
• The pricing war in corporate lending is called unsustainable: management described a race to the bottom where corporates bargain aggressively and banks undercut each other to retain clients, a dynamic it wants no part of long-term.
• Co-lending is a quiet growth vector: the portfolio reached ₹2,900 crores with around 10 partners, and the experience is described as very healthy; the GST-based MSME product (loans up to ₹10 crores against cash flows) has built a ₹1,500 crore book with virtually negligible delinquency.

Saha: "The pricing war that goes into a corporate segment portfolio is literally a price war. The corporates have become more bargainable, so they bargained to the most and we are all cutting each other sometimes in terms of retaining customers, in terms of building portfolios, which in the long run is not a healthy way or sustainable way of growth."

Asset Quality: The Turnaround Story

• Gross NPA fell 202 bps to 4.21% and net NPA dropped 42 bps to 1.46%, driven by fresh slippage control, better underwriting, and a transformed collection machinery.
• Slippage ratio improved to 0.28% with fresh slippages of just ₹230 crores; agriculture slippages, a seasonal pain point given the bank’s northern-India geographic skew, fell to ₹85 crores from ₹144 crores in the year-ago September quarter.
• Collection efficiency is the operational hero: from ~60% three years ago, it hit 97.82% by September 30, achieved through centralized calling, NACH mandates, standing instructions, SMS reminders, and a new credit mid-office concept in zonal offices for pre-disbursement due diligence and post-sanction monitoring.
• Underwriting has been structurally strengthened: back offices now handle loan sanctioning with branch powers limited, and delinquency on back-office-sanctioned accounts is described as negligible; early warning systems and a credit monitoring division are in place.
• Two specific accounts flagged: MTNL was declared NPA on October 8 after the 90-day overdue period expired, with 15% provision already made as of September 30; Jonson Rubber remains classified as standard due to a high court stay order, though technically NPA, with over 60-65% provision held.
• The credit book is defensively positioned: 64.25% of exposures above ₹5 crores are rated BBB and above, concentrated in AAA and AA; the bank has no credit card exposure and its personal loans are restricted to salaried accounts with limited delinquency.

CASA & Deposits: The Structural Headwind

• CASA ratio slipped marginally to 30.43% and the cost of deposits rose sequentially from 5.64% to 5.74%, compressing the liability-side advantage at a time when the bank is trying to fund RAM growth.
• Management is candid about the root cause: the bank’s geographical presence is not yet adequate for a public sector bank, limiting its natural CASA catchment; retail term deposits are growing at nearly 9% YoY, but that is costlier money.
• The CASA-plus-retail-term-deposit pool is targeted to rise from 72% to 75% and eventually 80%, a gradual build that acknowledges the difficulty of moving the CASA needle quickly.
• The fix is a multi-pronged digital and partnership push: special MSME drives across all 25 zones every fortnight in Q3 and Q4 (MSME lending is correlated with CASA improvement), collaborations with defence and state employee associations for salary accounts, and a revamped PSB UnIC app (rated 4.70) now offering mutual funds, PPF, and loans against FDs.
• New infrastructure is in the pipeline: a CASA back office with Tab Banking is targeted for January/February, a call center revamp with CRM module is 5-6 months out, a Forex trade module is coming in 5-6 months, and a corporate biz app for current account acquisition is due in 3-6 months.
• Management will not grow advances at the cost of deposits: if the cost of deposit is 5.74% and bulk deposits or CDs are expensive, the bank will only deploy funds where it can maintain NIM and NII, even if that caps credit growth.

Saha: "This is a challenging area for all of us in today's ecosystem. All the bank's CASA ratios are coming down and particularly, we have a challenge because our geographical presence is still not as it should be in a Public Sector Bank."

Credit Growth: Conservative Guidance, Selective Deployment

• Gross advances grew 11.14% and the bank added ₹3,294 crores in the quarter (₹5,100 crores in H1), yet management declined to raise its full-year guidance of 10-12%, citing industry-wide credit moderation, deposit mobilization challenges, and the corporate churning process that may shed low-yielding assets.
• The guidance is a floor, not a ceiling: management said it will grow beyond 12% if profitable opportunities arise, but only in higher-yielding assets; the bank has consciously moved away from treasury deployment over the last two quarters to fund credit, and sequential credit growth partly reflects that rotation.
• The gap between investment yield (7.06%) and advances yield (8.75%) makes the trade clear, but management is conscious that yields are coming down and is strategizing to invest in higher-yielding instruments or higher-yielding assets in the pipeline.
• Rate cuts are a next-fiscal-year story, per management, which sees the current rate environment persisting through FY25; the bank is positioning its book accordingly rather than betting on a near-term easing cycle.

Saha: "We can grow but if we have an opportunity to grow at a higher-yielding asset, we'll of course grow. We will not grow at the cost of my deposits."

Digital Transformation: Promised, Not Yet Delivered

• Management teased a wave of change: "You will find a lot of changes that are coming in the next six months," but declined to specify areas, calling it premature; the digital narrative is heavy on intent and light on disclosed specifics.
• The PSB UnIC app is the current flagship: it now hosts mutual funds, PPF, loans against FDs, and demat account opening via a wealth tech partnership with FISDOM; a corporate biz app for current account holders is in development with a 3-6 month timeline.
• Backend infrastructure is being rebuilt: the Finacle core banking upgrade completed in October last year enabled the app improvements; a data analytical cell for cross-selling is being set up, and digital lending is being brought into the digital story for retail and MSME segments.
• Branch and channel expansion continues: 17 branches opened this year with a plan for 100 total, plus an expanding BC and ATM network; collaborations with Punjab Agriculture University and ISB Mohali signal an intent to build origination pipelines beyond traditional catchment areas.

Saha: "The bottom-line answer on this in a one-liner is that you will find a lot of changes that are coming in the next six months. It's too premature for me to tell you exactly what are the areas which we are working on."

Guidance & Commitments

Key Metrics