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Shares of public sector undertaking (PSU) banks came under pressure on Friday, falling up to 10 per cent, on profit booking.
Indian Overseas Bank (IOB), UCO Bank, and Central Bank of India dipped 10 per cent, while Indian Bank, Bank of Maharashtra, Union Bank of India, Bank of India, and Canara Bank slipped in the range of 5.5 per cent to 9 per cent on the National Stock Exchange (NSE).
At 01:35 PM, the Nifty PSU Bank index was the top loser among sectoral indices and was down 5.1 per cent, as compared to 1.4 per cent decline in the Nifty 50. With today’s fall, the Nifty PSU Bank index has corrected 15 per cent from its 52-week high level of 4,617.40 touched on December 15.
Most of the PSU banks have seen a sharp run-up in their stock prices following strong earnings in the July-September quarter (Q2FY23). The Nifty PSU Bank index had surged 103 per cent from its June 20 level of 2,283.85.
In the first half of the current financial year 2022-23 (FY23), the cumulative net profit of all public sector banks (PSBs) increased by 32 per cent to Rs 40,991 crore. The government’s efforts to reduce bad loans were yielding result with 12 public sector banks reporting a 50 per cent jump in combined net profit at Rs 25,685 crore in Q2FY23.
“Strong credit demand from retail & MSMEs coupled with a gradual revival in the corporate segment led to a continued uptick in credit growth. Faster transmission of rate hikes on assets compared to liabilities and healthy proportion of low cost deposits resulted in an uptick in margins across lenders. A declining trend in slippages led to lower credit cost and further improvement in NPA numbers,” analysts at ICICI Securities said in a Q2FY23 earnings wrap report.
Meanwhile, Anmol Das, Head of Research, Teji Mandi, believes the ongoing re-rating of PSU Banks will keep going for the next 1-2 years before peaking. This is because increased interest rates, he said, may affect asset qualities for some banks.
“High credit growth rate could lead to some PSBs to grant below ‘BBB’ grade of credit underwriting, just to keep the pace of credit underwriting at the industry level,” he said.
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