India’s state-run banks have emerged far stronger after a decade of balance-sheet clean-up and reforms, but staying nimble in an increasingly uncertain global environment will be their biggest test, Punjab National Bank (PNB) managing director and chief executive Ashok Chandra said.
Despite ongoing geopolitical tensions, including the conflict in West Asia, weighing on the global economy, PNB has not seen any stress in its loan portfolio and expects credit growth to exceed 13% in fiscal year 2027 (FY27), Chandra told Mint in an interview.
"If you look at the last 10 years, the measures adopted by banks and the guidance provided by the Government of India and the Reserve Bank of India have brought significant improvements in the banking sector, particularly public sector banks," he said.
He said that a decade ago, PSBs were grappling with elevated non-performing assets, capital shortages and weak operational metrics.
"Recovery was a major challenge. Capital was one of the constraints and almost every efficiency parameter required improvement," he said, adding that banks subsequently focused on resolving stressed assets while investing aggressively in digital transformation.
Today, PSBs have substantially upgraded their technology capabilities through mobile banking, and internet banking, significantly improving customer experience and operational efficiency.
Over the past decade, the government and the RBI launched a series of structural reforms to tackle bad loans at PSBs, including the asset quality review to force recognition of stressed assets, large-scale recapitalisation to strengthen bank capital, and the introduction of the Insolvency and Bankruptcy Code to accelerate resolution of defaulting borrowers.
Chandra said India's macroeconomic resilience continues to support banking sector growth despite global uncertainties.
"Despite the challenges globally, India's GDP growth of 7.8% in the fourth quarter reflects the resilience of the Indian economy. If the economy performs well, the banking sector, particularly public sector banks, is poised for healthy growth, better asset quality and sustained profitability," he said.
On the government's Viksit Bharat 2047 vision, Chandra said India's banking industry has the potential to emerge among the world's leading financial institutions as the economy expands.
"If India becomes a $30 trillion economy by 2047, Indian banks will gradually move into the global top 100 and eventually some of them should find a place among the world's top 20 banks," he said.
The country's third-largest bank expects credit growth of 12-13% in FY27. The bank has already reported a 12.7% credit growth in the first quarter (April-June 2026), with Chandra expressing confidence that growth would exceed 13% going forward.
PNB has guided for deposit growth of 9-10%, a conscious strategy, according to Chandra, as the bank's credit-deposit ratio remains around 72-73%, providing sufficient room to support loan growth without chasing deposits aggressively.
"If credit demand accelerates and the credit-deposit ratio reaches around 77-78%, we can revisit our deposit mobilisation strategy," he said.
Within the loan book, the bank continues to see broad-based momentum. MSME lending grew 19.8% in the first quarter after expanding by over 20% in FY26. Core retail lending is growing at 17-18%, priority sector advances expanded 16.5%, while the corporate loan portfolio also registered growth of over 10%, he said.
Despite concerns over the West Asia conflict and the possibility of an El Niño-led disruption to agriculture, Chandra said PNB has not witnessed any signs of stress in its portfolio.
"As of now, we have not seen any adverse impact on MSMEs, agriculture or any other segment. Manufacturing and export data continue to remain healthy, and the Indian economy has shown resilience," he said, adding that the impact of the monsoon would become clearer over the next couple of months.
On profitability, Chandra said pressure on net interest margins (NIMs) has begun to ease after the repricing of high-cost deposits.
According to him, PNB's global NIM improved to 2.50% from 2.47%, while domestic NIM increased to 2.60% from 2.57% during the first quarter. Net interest income has improved both sequentially and year-on-year, and he expects further improvement during the year.
Chandra said PNB has already mobilised more than $1 billion under the RBI's special FCNR(B) deposit window and remains on course to achieve its internal target of around $2.5 billion.
Cybersecurity has emerged as another major focus area for the lender. Chandra said PNB has earmarked ₹3,500 crore for IT, digital transformation and cybersecurity as it prepares for increasingly sophisticated cyber threats. The bank has already deployed quantum-safe technology across 86 public-facing applications, aimed at safeguarding systems against future cyber threats from quantum computing. It is also exploring the use of quantum technologies to enhance fraud detection and identify suspicious interconnected accounts at an earlier stage.
The bank has set a ₹13,000 crore bad loan recovery target for FY27, including ₹4,000 crore from technically written-off accounts. During the first quarter, the bank recovered around ₹2,800 crore, including approximately ₹1,900 crore from technically written-off accounts, and remains on track to achieve its annual target.
On the high-profile fraud accounts involving fugitive diamantaires Nirav Modi and Mehul Choksi, Chandra said the bank continues to pursue all available recovery measures. "Whatever recovery action is required from the bank's side, we are doing that," he said, adding that PNB is following up with the Enforcement Directorate and pursuing the release and monetisation of attached properties wherever possible. Recovery efforts in both group accounts are continuing through available legal channels.