Punjab National Bank shares soared as much as 4.4% in morning trade today to post their biggest intraday gain since May 16, as the stock continues to recover from a sharp correction seen in the last two months. Shares of the state-run lender PNB were trading up 3.7% on BSE at Rs 142.1, after rising to an intraday high of Rs 142.75.
Earlier Wednesday, Research and brokerage firm Nomura upgraded its recommendation on Punjab National Bank to ‘buy’ from ‘neutral’, while keeping the target price at Rs 180 per share. After the 24% correction in the past two months, incremental risk reward is turning favourable again for the bank, Nomura said in a note.
While Nomura raised a flag about high provisioning levels seen carrying into the near future, it also noted the recent NPA write-offs as a comfort to the investors. Near-term provisioning will remain elevated given the lower coverage of 41%, but large stock of prudentially written-off NPAs provides comfort, Nomura said.
PNB shares have fallen sharply in the last two months, tumbling from a high of Rs 179.45 on May 4 to Rs 137 on July 5. However, despite the major correction, PNB has outperformed benchmark indices so far this year, rising 18.3% since January against an 11.11% gain in Nifty PSU Bank index during the same period.
India has recently taken tough measures to solve the chronic problem of bad debt in the banking system, which is choking credit and stifling growth. The Reserve Bank of India has identified 12 accounts with large unresolved NPAs (non performing assets) for speedy action on recovery of dues. The central bank has directed the lead banker IDBI Bank to initiate insolvency proceedings on Lanco Infratech, which has about Rs 18,000 crore in unpaid dues. Meanwhile, bankruptcy proceedings have already been filed on Essar Steel Ltd and Monnet Ispat and Energy Ltd.
Earlier May, the government notified an ordinance for speedy resolutions of NPAs in efforts to deal with the problem of India’s chronic bad loans, which have surged to to Rs 9.63 lakh crore. According to the RBI, top 12 bad loan accounts make up for Rs 2.5 lakh crore of bad debts, or 25% of the total. The ordinance gave powers to the RBI to direct banks to initiate bankruptcy proceedings against bad debt accounts under the Insolvency and Bankruptcy Code 2016 (IBC). Shares of most of the nine listed companies out of the 12 on the RBI’s list are on a downtrend since then.