Muhurat Trading: PNB shares in focus after company marks Rs 9,000 crore hit due to RBI credit loss rules

Shares of Punjab National Bank (PNB) are expected to remain in focus during Muhurat Trading after the state-run lender said it will take an estimated hit of Rs 9,000 crore if it moves to the Reserve Bank of India’s new expected credit loss (ECL) framework by 2031.

The disclosure makes PNB one of the first major public sector banks to quantify the potential impact of the RBI’s proposed guidelines, which require lenders to make provision for likely credit losses before defaults occur, rather than after. The new norms mark a significant shift from the current loss model and aim to strengthen the Indian banking system against future credit shocks.

“The impact is about Rs 9,000 crore,” said Ashok Chandra, managing director and CEO of PNB, in an interview with Reuters. “The bank has made a rough estimate, as this new credit rule was already in the pipeline. I see no further deviation.”

According to the RBI’s draft framework, banks are required to move to an ECL-based provisioning system over a five-year transition period beginning April 1, 2027, giving lenders time to adjust their balance sheets and capital buffers. The new system will require lenders to set aside provisions for potential defaults based on forward-looking models, rather than waiting until loans no longer perform.

According to Chandra, the estimated impact of Rs 9,000 crore translates to about 0.85 percentage points of the PNB’s capital-risk-weighted asset ratio (CRAR) – a key metric that measures a bank’s financial strength. The bank’s CRAR stood at 17.19% as of September 30, well above the legal minimum.

The CEO emphasized that the hit would be manageable and could be absorbed through regular corporate profits rather than a new capital injection. “We will be able to handle our internal build-up on our own,” he said. “The bank is well prepared to meet all requirements that will come in the future.” For PNB, the majority of the additional provisions under the new framework will apply to assets in phase two: loans that have shown early signs of stress but have not yet been classified as non-performing. These are largely concentrated in the retail, agricultural and SME segments, which account for a significant portion of the bank’s loan portfolio. The second-stage assets represent exposures where borrowers have missed repayments but remain within regulatory limits. Under the ECL model, banks will have to assign higher risk weights and maintain adequate provisions even before such accounts default.

PNB reported a 14% year-on-year increase in net profit to Rs 4,904 crore for the September quarter, helped by higher interest income and improved asset quality. Chandra said the lender is on track to post a net profit of over Rs 15,000 crore for FY26, driven by retail and corporate loan growth and cost control.

The RBI’s shift to the ECL regime is expected to make provisioning in the Indian banking sector more transparent and forward-looking. However, analysts say public sector banks with high exposure to retail and agriculture may face higher upfront provisioning costs.

While the stock has corrected after surging in recent weeks, PNB’s early disclosure on the impact of the ECL and management’s confidence in offsetting costs through earnings could help stabilize investor sentiment in the short term.