CRISIL said that the revision in outlook factors in the sustained improvement in earnings and asset quality, and strengthening of capital position, which is likely to be maintained over the medium term. The bank has been profitable since the past 10 quarters owing to lower credit cost backed by less incremental stress as well as improving net interest margin (NIM).

Supported by regular capital infusion, the bank was able to build a sufficient buffer for its non-performing assets (NPAs), with a provision coverage ratio (PCR) of 72% as on 30 June 2023 (75% as on 31 March 2023). With higher provisions and lower slippages, the bank is expected to maintain profitability over the medium term.

Asset quality, while weak, has seen sequential improvement with gross NPAs (GNPAs) at 6.80% as on 30 June 2023, compared with 6.97% as on 31 March 2023, and 12.17% as on 31 March 2022. This improvement was driven by higher write-offs and controlled slippages.

Besides, capital position has improved, supported by timely capital infusion and internal accrual, leading to tier 1 and overall capital adequacy ratio (CAR) improving to 14.5% and 17.2%, respectively, as on 30 June 2023, from 13.1% and 16.8%, a year earlier.

Capital position is supported by regular fund infusion and expectation of strong support from the majority stakeholder, the Government of India (GoI). In fiscals 2021 and 2022, the bank received Rs 5,500 crore and Rs 4,600 crore, respectively, from the GoI.

The rating continues to factor in the expectation of strong support from majority owner, the GoI. These strengths are partially offset by the bank's weak asset quality and modest earnings.

Punjab & Sind Bank is a relatively small PSB, founded in 1908 in New Delhi. The bank had 1,543 branches and 802 ATMs as on 30 June 2023, primarily in northern India. GoI's ownership stood at 98.25% as on 30 June 2023.

For the quarter ended 30 June 2023, net profit was Rs 153 crore and total income (net of interest expense) was Rs 916 crore, against a net profit of Rs 205 crore and total income (net of interest expense) of Rs 824 crore for the corresponding period previous fiscal.