Punjab National Bank’s Ambitious Turnaround: Can Aggressive Debt Recoveries Push Bad Loans to Record Lows?

India’s second-largest state-owned bank, Punjab National Bank (PNB), is making a bold play to redefine its financial trajectory. In May 2025, CEO Ashok Chandra unveiled an audacious goal: slash the gross non-performing asset (NPA) ratio below 3% by March 2026—a level that would mark the lowest in the bank’s history. The strategy hinges on a dramatic ramp-up in debt recoveries, with ₹160 billion ($1.89 billion) targeted this fiscal year, an 11-fold increase from ₹14.36 billion recovered in 2024-25. But can PNB deliver on this promise, and what does it mean for investors?

The Recovery Gamble
At the heart of PNB’s plan is a renewed focus on reclaiming defaulted loans, including ₹60 billion from accounts previously written off. This aggressive approach reflects a broader shift in India’s banking sector, where lenders are leveraging improved economic conditions and stricter enforcement of loan recovery mechanisms. If successful, PNB’s gross NPA ratio would drop to 2.9% by March 2026—down from 3.95% in March 2025 and a pandemic-era peak of 14.33% in 2020-21.

The CEO’s confidence stems from recent financial gains: a 52% year-on-year jump in net profit for Q4 2025, driven by reduced bad-loan provisions, and robust loan growth of 13.1% in domestic lending. PNB also projects 11%-12% loan growth for FY2025-26, with a corporate loan pipeline of ₹1.35 trillion and 16%-17% expansion in SME lending—a segment critical to India’s economic revival.

The Risks Lurking in the Shadows
Yet, PNB’s path is fraught with hurdles. The bank’s cost of funds remains elevated due to lagging effects of the Reserve Bank of India’s rate cuts, which could squeeze margins in the near term. There’s also the lingering issue of Bhushan Power and Steel, a major corporate default. After the Supreme Court voided JSW Steel’s 2021 buyout of the company, PNB has already recovered ₹30 billion but faces uncertainty over remaining claims. Chandra’s assurance that “all options will be explored” offers little clarity on the timeline or outcomes of this complex case.

Investors, however, are betting on PNB’s turnaround. The stock has outperformed broader banking indices in 2025, rising 18% year-to-date amid optimism about NPA reductions and loan growth. But skeptics question whether the recovery targets are overly ambitious. Analysts note that ₹160 billion in recoveries would require PNB to clear nearly double the amount it recovered in the previous five years combined—a pace that could strain its operational capacity.

The Bigger Picture: A Strategic Shift
PNB’s strategy mirrors a broader trend in India’s public-sector banks, which have been under pressure to clean up balance sheets and compete with private-sector rivals. The bank’s focus on SME lending—a sector growing at 12% annually—positions it to capitalize on India’s small-business boom. Meanwhile, its deposit growth of 13.3% in Q4 2025 underscores strong customer confidence, a vital buffer against rising competition.

Yet, the true test lies in execution. PNB’s ability to sustain recovery rates, navigate legacy cases like Bhushan, and manage costs will determine whether its NPA ratio stays below 3% post-2026. If achieved, the bank could finally escape the shadow of its 2011-2019 bad-loan crisis and emerge as a leaner, more profitable entity.

Conclusion: A Turnaround Worth Watching, But Not Without Hurdles
PNB’s ambitions are undeniably bold. The ₹160 billion recovery target, if met, would slash its NPA ratio to historic lows and unlock significant upside for profitability. With loan pipelines swelling and SME demand surging, the bank is well-positioned to grow. However, the path remains fraught with execution risks—from Bhushan’s unresolved claims to the persistent cost of funds.

For investors, PNB’s stock (PNB.NS) offers a high-risk, high-reward bet on India’s banking revival. Its current price-to-book ratio of 1.2—below peers like State Bank of India (1.4) and ICICI Bank (1.7)—hints at undervaluation if NPA targets are achieved. But with 70% of recoveries tied to previously written-off accounts (a notoriously tricky category), success hinges on aggressive enforcement and judicial cooperation.

In the end, PNB’s story is less about past mistakes and more about whether it can turn the page—and convince markets that its transformation is real. The clock is ticking.

Data sources: PNB’s Q4 2025 earnings release, Reserve Bank of India, Supreme Court rulings, and analyst estimates.