RBL Bank, PNB Target Revisions By Morgan Stanley Signal Downside
RBL Bank, PNB share prices fell 2.1% and 3.37%, respectively in intraday trade on Thursday as the brokerage retained its 'Underweight' rating.
Morgan Stanley Research has revised its price targets for RBL Bank Ltd. and Punjab National Bank Ltd., signalling downside risks for both lenders amid differing earnings challenges and operational trajectories.
The brokerage cut RBL Bank’s target to Rs 160 from Rs 180, implying a downside of 3.54%, while PNB’s target was raised to Rs 95 from Rs 85, still reflecting a downside of 7.79%. Both stocks retain an 'underweight' rating.
The price target for RBL Bank has been lowered primarily due to higher credit costs and lower margins whereas for PNB, it has been attributed to improved credit costs and robust growth in advances.
For RBL Bank, the brokerage trimmed earnings forecasts by 1% for fiscal 2025, 9% for fiscal 2026, and 2% for fiscal 2027, reflecting asset quality challenges in its credit card and micro-lending portfolios.
Sustainable Return on Equity assumptions were revised downward, with the base case now at 9.5% (previously 10%), the bear case at 6.3% (from 7.5%), and the bull case at 14.5% (from 15%). Gross non-performing assets increased sequentially to 2.88% in the September quarter, impacting profitability as net profit declined 24% year-on-year to Rs 223 crore.
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PNB, on the other hand, benefitted from strong credit growth, with domestic advances rising 11.8% year-on-year to Rs 9.05 lakh crore and global advances up 13% to Rs 9.42 lakh crore in the September quarter.
Morgan Stanley lowered fiscal 2025 earnings estimates by 3% due to softer core operating profits but increased projections for fiscal 2026 and fiscal 2027 by 5% and 3%, respectively. Sustainable ROE assumptions were revised upwards, with the base case rising to 10% (from 9.5%) and the bull case to 12.5% (from 12%).
The revision for RBL Bank follows recent regulatory and operational challenges. On Nov. 22, the Reserve Bank of India imposed a penalty of Rs 61.4 lakh on the lender for non-compliance with know-your-customer norms. Additionally, the bank halted issuing new co-branded credit cards after identifying partnership-related changes, though it assured that existing cardholders remain unaffected.
Shares of RBL Bank and PNB fell as much as 2.10% and 3.37%, respectively, in intraday trade on Thursday.
