PSB stocks gain 8.5% in five sessions

The Nifty PSU Bank index has risen for the fifth straight day, extending its gains to 8.5% in five sessions, with the index closing at 4,339 on Tuesday.  

All 13 of the index components advanced. PNB was the biggest gainer with a 5.9% rise, followed by JK Bank (5.9%) and Bank of India (3.8%).

“Public banks have performed well after Covid. The asset quality cycle tailwind has resulted in improvement in NPA ratios. The corporate credit woes are behind us. So, we expect the credit cost normalisation in the coming period. So far as the growth is concerned, the PSU banks are likely to report strong growth factoring capex improvement,” said Ajit Kabi, banking analyst with LKP Securities.

Kabi expects further room for rerating, especially for the large PSBs such as SBI and Bank of Baroda, which are growing rapidly on the consumer credit front. Nevertheless, he says, the ECL provision should be keenly watched.

“The Indian banking system is currently in a healthy state, characterised by low NPAs and strong loan growth. Moreover, banking stocks, including PSU banks, still offer attractive valuations, providing comfort to investors,” said Santosh Meena, head of research, Swastika Investmart.

He said the recent business update from the Bank of Maharashtra is particularly encouraging, as it highlights solid growth in both deposits and loans. The return of Rs 2,000 notes to the system in terms of deposits helped PSBs with liquidity. This, in turn, has positioned them favourably for potential growth and profitability in the upcoming quarter. “Overall, the combination of favourable market conditions, strong fundamentals and positive business updates suggests a promising outlook for PSBs, raising expectations for another robust quarter ahead.”  

Government-owned banks have seen a very sharp growth in overseas book and a healthy growth in corporate segment in the previous three-four quarters, according to a recent report by ICICI Securities. Due to a sharp reduction in net slippages and credit costs (thanks to resilient corporate asset quality), RoAs for PSBs have also expanded to multi-year highs. Due to strong leverage, RoE for PSBs and private banks have almost converged in FY23. PSU lenders have also aggressively focusing on unsecured personal loans.

“PSBs had a marginally higher growth on a QoQ basis versus private peers for the initial three quarters of FY23. However, growth differential returned in favour of private banks (up 6% QoQ) versus PSUs (up 4.2% QoQ) in Q4FY23. On a year-on-year basis, the growth for public and private banks has almost converged,” the brokerage said.

Analysts expect PSU banks to remain in focus on the expectation of healthy numbers in the first quarter of the current fiscal.