PNB to enter acquisition finance in Q3, says MD Chandra

Punjab National Bank (PNB) is set to enter the acquisition finance segment in the third quarter of this fiscal year, Managing Director and CEO Atul Kumar Chandra announced. The move marks a strategic shift for the state-owned lender as it looks to expand its corporate lending portfolio beyond traditional working capital and term loans.

New product to target M&A deals

Acquisition finance allows companies to borrow money to buy other businesses. PNB's entry into this space comes as India's merger and acquisition activity picks up, with firms seeking capital to fund growth through takeovers.

Chandra did not disclose specific targets or the size of the proposed acquisition finance book. Bank officials are working on product details, including loan-to-value ratios, interest rates, and sector focus.

Strategic pivot for PNB

For PNB, this is a departure from its traditional focus on retail and working capital loans. The bank has been under pressure to improve asset quality and profitability after years of high bad loans. Acquisition finance typically involves lower credit risk if structured properly, as the target company's assets can serve as collateral.

PNB's foray follows similar moves by other public sector banks. State Bank of India and Bank of Baroda already offer acquisition financing. Private lenders like ICICI Bank and HDFC Bank dominate the segment.

Timing and market conditions

The launch in the third quarter aligns with expectations of a pickup in deal-making after the monsoon season. Corporate balance sheets have strengthened, and private capital expenditure is showing signs of revival.

However, PNB will face stiff competition from private banks that have deeper expertise in structured finance. The lender will need to build a specialized team and risk assessment framework to avoid past mistakes.

Capital position and outlook

PNB recently raised capital through a qualified institutional placement, strengthening its Tier-1 capital ratio. This gives it the headroom to expand into new lending areas. The bank reported a net profit of ₹2,500 crore in the June quarter, its best in five years.

Analysts will watch how PNB prices its acquisition loans. If it undercuts rivals to win business, margins could suffer. If it prices competitively, it may struggle to gain traction against established players.

The bank is expected to roll out the product by October. Details on minimum deal size, tenure, and collateral requirements are expected closer to the launch date.