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India's PNB to focus on project financing to revive business loan growth, CEO says

India's PNB to Prioritize Project Financing in Bid to Revive Sluggish Corporate Loan Growth, CEO Announces

MUMBAI, July 30 (Reuters) - Punjab National Bank (PNB), one of India's largest state-owned lenders, is set to sharpen its focus on project financing as a key strategy to rejuvenate its underperforming corporate loan segment, according to Chief Executive Officer Atul Kumar Goel. Speaking during a post-earnings call with analysts, Goel outlined the bank's ambitious plans to leverage India's booming infrastructure and renewable energy sectors to drive overall credit expansion, aiming for a robust 11-12% loan growth in the current fiscal year.

The announcement comes amid a backdrop of uneven recovery in India's banking sector, where public sector banks like PNB have been grappling with the lingering effects of past non-performing assets (NPAs) and a cautious approach to corporate lending. PNB, which has been on a path to recovery following a massive fraud scandal in 2018 involving diamond merchants, reported a significant slowdown in its corporate loan book during the first quarter of fiscal 2025. Corporate loans grew by a mere 2.5% year-on-year, starkly contrasting with the bank's retail lending segment, which expanded by an impressive 15%. This disparity dragged down the overall loan growth to 10.3%, prompting the bank to pivot towards high-potential areas like project finance to bridge the gap.

Goel emphasized that the bank's renewed emphasis on project financing is not just a tactical shift but a strategic imperative aligned with national priorities. "We are seeing tremendous opportunities in infrastructure development, including roads, airports, and renewable energy projects," Goel told analysts. He highlighted that India's push towards sustainable energy and massive infrastructure spending under initiatives like the National Infrastructure Pipeline could provide a fertile ground for banks to deploy capital effectively. The government has earmarked trillions of rupees for such projects, creating a pipeline of opportunities for lenders willing to take on structured financing deals.

Delving deeper into the rationale, Goel explained that corporate lending has been hampered by several factors, including subdued demand from large conglomerates and a preference for market borrowings over bank loans. Many big-ticket corporates have opted for bonds or equity markets to raise funds, leaving banks like PNB with limited avenues for growth in traditional term loans. To counter this, PNB plans to actively participate in consortium lending for greenfield projects, where risks are mitigated through shared exposure and government-backed guarantees. This approach, Goel noted, would not only accelerate loan disbursements but also improve the bank's asset quality by focusing on viable, long-term projects with predictable cash flows.

The CEO's comments were made in the context of PNB's strong quarterly performance, which underscored the bank's improving financial health. For the quarter ended June 30, PNB reported a staggering 159% surge in net profit, reaching 32.85 billion rupees ($392 million). This jump was primarily driven by higher interest income and a significant reduction in provisions for bad loans. Net interest income, a key profitability metric, rose 10% to 101.7 billion rupees, reflecting better margins amid a stable interest rate environment. The bank's net interest margin stood at 3.07%, a slight improvement that Goel attributed to efficient cost management and a favorable deposit mix.

Asset quality, a perennial concern for Indian public sector banks, showed marked improvement. Gross non-performing assets (NPAs) declined to 4.98% from 7.73% a year earlier, while net NPAs fell to 0.60%. Goel credited this to proactive recovery efforts and a disciplined underwriting process. "Our focus on retail and now on quality corporate exposures will further strengthen our balance sheet," he said. The bank has also been aggressive in resolving legacy bad loans, with recoveries amounting to billions in the recent quarter.

Looking ahead, PNB's growth strategy extends beyond project financing. The bank is targeting double-digit expansion in its retail portfolio, particularly in housing, vehicle, and personal loans, where demand remains buoyant due to rising consumer confidence and urbanization. Goel projected that deposits would grow in tandem with loans, aiming for 10-11% deposit growth to maintain a healthy loan-to-deposit ratio. To fund this expansion, PNB is exploring capital-raising options, including qualified institutional placements (QIPs) and additional tier-1 bonds, potentially raising up to 75 billion rupees in the coming months.

Analysts have responded positively to Goel's vision, noting that project financing could indeed be a game-changer for PNB. India's infrastructure sector is poised for exponential growth, with the government committing over 100 trillion rupees ($1.2 trillion) in investments by 2030. Sectors like solar and wind energy, urban mobility, and digital infrastructure are expected to attract substantial funding, and banks with expertise in project appraisal stand to benefit. However, challenges remain, including regulatory hurdles, environmental clearances, and the risk of project delays, which could impact repayment schedules.

Goel addressed these concerns by stressing PNB's enhanced risk management framework. The bank has invested in advanced analytics and due diligence processes to evaluate project viability, ensuring that only high-quality proposals are funded. "We are not chasing growth at any cost; sustainability and prudence are at the core of our strategy," he asserted. This cautious optimism is echoed in the bank's guidance for the full year, where it expects to maintain net interest margins around 3% and continue reducing NPAs.

The broader implications of PNB's strategy resonate across India's banking landscape. As the second-largest public sector bank by assets, PNB's move could encourage peers like State Bank of India and Bank of Baroda to deepen their involvement in project finance. This aligns with the Reserve Bank of India's (RBI) push for banks to support economic growth through targeted lending, especially in priority sectors. With India's economy projected to grow at 7% in FY25, driven by manufacturing and services, the banking sector's role in channeling credit efficiently will be crucial.

Historically, PNB has faced turbulence, most notably the 2018 fraud involving unauthorized letters of undertaking worth over $2 billion, which eroded investor confidence and led to a multi-year cleanup. Under Goel's leadership since 2021, the bank has made strides in governance reforms, digital transformation, and customer outreach. The latest results and strategic announcements signal a potential turnaround, positioning PNB as a more agile player in a competitive market dominated by private lenders like HDFC Bank and ICICI Bank.

In terms of market reaction, PNB's shares rose modestly following the earnings release, reflecting investor approval of the growth outlook. Analysts from firms like Motilal Oswal and ICICI Securities have upgraded their ratings, citing improved profitability and a clear path to sustainable growth. However, they caution that execution will be key, particularly in ramping up corporate disbursements without compromising on asset quality.

Goel concluded the call on an upbeat note, reiterating the bank's commitment to delivering value to stakeholders. "With a strong capital base and a focused strategy, PNB is well-equipped to capitalize on India's growth story," he said. As the bank embarks on this new phase, its success in project financing could not only revive its corporate loan book but also contribute to the nation's ambitious development goals.

This strategic pivot underscores a broader trend in Indian banking, where lenders are increasingly looking beyond traditional avenues to fuel growth. By betting on infrastructure and renewables, PNB aims to transform its loan portfolio, ensuring balanced expansion across segments. If executed well, this could mark a significant milestone in the bank's recovery journey, bolstering its position in a dynamic economic environment.

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Read the Full reuters.com Article at:
[ https://www.reuters.com/world/india/indias-pnb-focus-project-financing-revive-business-loan-growth-ceo-says-2025-07-30/ ]