Punjab & Sind Bank Q2 FY2027 Concall Summary

Key Takeaways

• Clean quarter, broad-based growth: Net profit rose nearly 40% YoY to INR412 crores, driven by 22% NII growth and 23.6% core fee income growth, while asset quality improved further.
• RAM shift accelerating: RAM advances grew over 31% YoY, taking share to 61.37% from 55.15%, with management targeting 65% by March 2027 and 70% by March 2028.
• SMA reduction unlocks ECL efficiency: Overall SMA fell from over 9% to below 4%, and management expects a further drop to 2–2.5% in a short span, which would materially improve the steady-state ECL provisioning run rate.
• Digital build-out is now a multi-front investment cycle: A global consultant is driving digital transformation 2.0, 12 products sit on a single QR code, and the bank is staggering IT investments across collections, recovery, cybersecurity, and resilience operations.
• What to watch next quarter: Whether the SMA ratio continues its trajectory toward 2–2.5%, the pace of RAM share gains toward 65%, and any update on the capital raise via QIP.

Profitability & Margins

• NII and operating profit: Net interest income grew 22% YoY and operating profit rose 22% to INR617 crores, despite muted treasury performance from hardening yields and geopolitical uncertainty.
• Net profit: Net profit grew nearly 40% YoY to INR412 crores, helped by 23.6% growth in core fee income from non-fund business, cross-selling to third-party products, and service charges.
• NIM trajectory: NIM improved 17 bps YoY to 2.77%, and management sees potential for further improvement if the rate-hike cycle continues, with 25 bps already done and more expected.
• Efficiency ratios: Return on assets rose to 0.88%, ROE to 13.21%, and the cost-to-income ratio declined marginally.
• Treasury drag: Treasury performance was muted and the outlook remains wait-and-watch on geopolitical developments, with yields having hardened and more repo rate corrections expected on the upside.

Saha: "The idea was that the bank should become the most efficient bank in the country, and therefore, to build the most efficient bank in the country, we had to build a lot of structures, a lot of processes had to be redefined, a lot of products had to be customized, and a lot of team building and teamwork had to be inculcated amongst the workforce."

Asset Quality & ECL Transition

• GNPA and net NPA: Gross NPAs improved to 2.09% and net NPA to 0.61%, with PCR improving; management expects gross NPA below 2% by March-end and net NPA to continue reducing from its already-better-than-guidance level.
• SMA reduction: Overall SMA fell from over 9% to below 4% through strong measures, systems, and processes; a new collection efficiency module is being implemented to manage SMAs better.
• SMA target: Management expects to bring SMA down to between 2% and 2.5% in a short span of time, which would make the overall ECL provisioning run rate much healthier going forward.
• ECL impact: The bank is at the final stage of ECL number finalization; total additional impact expected at around 5% of net worth (~INR700 crore), including MTM on HTM investments, though adverse yield movements could add further impact at implementation. The net CRAR impact will be almost negligible due to the glide path and RWA changes effective 1 April 2027.
• Steady-state credit cost: Overall provisioning requirement expected between 0.5% and 0.6% (50–60 bps) from subsequent years, largely dependent on managing the Stage 2 portfolio.
• Recovery performance: Focused recovery efforts drove the GNPA and net NPA decline; TWO book recovery historically runs ~10% per year, with INR247.88 crore recovered so far this year, and management expects to repeat last year's TWO recovery performance.

Gaur: "We are expecting, that around 5% on the total net worth will be the additional impact, like when I'm looking for total impact perspective, so around INR700 crore we are expecting. And since glide path is available, so net impact on CRAR competition will be almost negligible."

Business Growth & RAM Strategy

• Overall business: Total business grew over 15.7%, with deposits at 13% and advances at 19% plus, continuing a consistent over-15% growth trend across recent quarters.
• RAM advances: RAM advances grew over 31% YoY, with share rising to 61.37% from 55.15%, driven by balanced growth across retail (42%), agriculture (16%), and MSME (28.69%).
• RAM trajectory: Management's strategy is to increase RAM percentage further, targeting 65% by March 2027 and around 70% by March 2028, while the corporate percentage reduces but churning within the corporate portfolio continues based on pricing appetite.
• Corporate credit approach: The bank will be selective in corporate credit, working on pricing in a professional and competitive way to not lose out on margins.
• CASA: CASA grew 7.5% YoY but share dipped to 28.83% due to industry-wide challenges in maintaining CASA.
• Deposit mobilization: Rural branches continue to give healthy deposits, and the bank is leveraging its network for deposit mobilization while expanding products and services through BCs and CBCs.

Saha: "...overall, the bank's strategy would be to increase the RAM percentage further and further. We are at 61% plus now. We should be at 65% by March '27 and jack it up to around 70% by March '28."

Digital & Technology Transformation

• Digital sourcing traction: Since 4 November 2024, approximately 40,000 proposals have been sourced digitally (~INR8,000 crore), with sanction rates of ~50% for vehicle loans and ~40% for home loans.
• Single QR platform: 12 products are now provided in a single QR code, with over 50% of vehicle loans and 40% of housing loans processed digitally.
• Digital product expansion: Commercial vehicle loans, personal loans, and loan against mutual funds have been brought onto the digital platform; the digital gold loan limit was expanded from INR2.5 lakhs to INR50 lakhs, and the MSME digital lending limit was enhanced to INR3 crore from INR1 crore.
• Digital transformation 2.0: A global consultant has been engaged for holistic digital transformation 2.0 covering both asset and liability sides, aiming to bring together isolated digital initiatives into an overall transformation with best-in-class mobile app and mobile enablers.
• IT investment philosophy: The bank is investing handsomely in IT requirements, staggering investments so the bank gets total benefit in the very near future; management views these as indispensable for the bank's efficiency to reach its full potential.
• Late-mover advantage: Management noted that starting late on various projects has helped the bank imbibe the best of technology.

Saha: "...we are investing quite handsomely in our IT requirements. And because we know that these are indispensable requirements. These have to be done. It adds to the cost in future, but without them, the bank's efficiency gets -- doesn't get to its full potential."

Operational Infrastructure Build-Out

• Recovery and collections tools: A recovery management tool purchase order has been issued to the desired vendor, with first-phase implementation by March and the second phase in another 3–4 months; a collection tool has already been implemented.
• Resilience operations center: Getting implemented, with the first phase by December and full implementation by March.
• Cybersecurity upgradation: The RFP process is to be completed this quarter and a new vendor appointed.
• Supply chain finance: The system is built, live, and ticking with two or three corporates; the bank will now open it up to various other opportunities.
• Co-lending: Activity slowed due to CLM-1 and CLM-2 integration; management expects another one or two months for integration to happen to the regulator's satisfaction, after which it can push harder.
• Gift City and forex: The Gift City operation should be live and ticking around November-end, and the forex trade module should kick in by Q3.
• Branch expansion: The bank has identified the top 200 districts (covering 80% of the country's bank business) and found 300 potential centers; branches will open as premises are finalized and workforce appointed.
• HR transformation: Implemented over the last two years, including performance management culture and target setting; recruitments are underway at LBO, PO, and CSL levels.
• Financial inclusion campaign: A pan-India outreach program launches 21st of this month through 31st December, targeting beneficiaries in villages for central and state government products, including insurance products (SBY and JJBY) for every eligible PMJDY customer.

Capital & Balance Sheet

• Capital adequacy: Capital adequacy moved this quarter in view of INR7,000 crore of additional funding done.
• Capital raise: Necessary approvals are in place and merchant bankers have been appointed; the bank is exploring all avenues, primarily through the QIP route, and will go to market when the right opportunity arrives based on merchant banker feedback.
• Business size ambition: Management expects to reach INR3 lakh crore business by end of this financial year and INR4 lakh crore by end of FY29, with the aspirational FY29 target possibly reached much ahead of schedule if the current direction continues.

Guidance & Commitments

Key Metrics