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Shares of public sector banks (PSU) continued their northward journey with the Nifty PSU Bank index surging nearly 3 per cent on the National Stock Exchange (NSE) in Thursday’s intra-day trade on expectations of strong earnings in coming quarters.
At 01:13 pm; the Nifty PSU Bank index was the top gainer among sectoral indices, up 2.75 per cent as compared to a 0.14 per cent gain in the Nifty 50. In the past one month, the index has rallied 17.4 per cent versus a 2.1 per cent upmove in the benchmark index.
Three state-owned banks, Punjab & Sind Bank, Union Bank of India (UBI) and UCO Bank, have seen their stock prices appreciating between 51-70 per cent in the past one month, while Bank of India, Punjab National Bank (PNB), Central Bank of India and Bank of Maharashtra have rallied in the range of 25-42 per cent.
In the first half of the current financial year 2022-23 (FY23), the cumulative net profit of all public sector banks (PSBs) was up 32 per cent to Rs 40,991 crore.
The government’s efforts to reduce bad loans were seen yielding results with 12 public sector banks reporting a 50 per cent jump in combined net profit at Rs 25,685 crore in the second quarter ended September (Q2FY23), Finance Minister Nirmala Sitharaman had said.
In Q2FY23, the overall banking sector seems to be on a strong footing led by a revival in business growth, improvement in margins and continued declining trend in NPA ratios, which has propelled earnings and thereby return ratios. Among PSBs, Bank of Baroda, State Bank of India, Union Bank and Canara Bank surprised positively on growth/earnings, while PNB disappointed due to higher provisions, according to Emkay Global Financial Services.
The brokerage believes that banks would now turn slightly aggressive on raising deposit rates to fund the credit demand, which should have some impact on the already high margins.
That said, it expects the improving LDR (mainly for PSBs) and re-pricing of MCLR loans to continue to support margins in H2FY23, leading to better core-profitability.
“The National Asset Reconstruction Company (NARCL) transfer of corporate NPAs is likely to begin soon and could thus lead to further reduction in NPAs for select PSBs. Some corporate NPAs under NCLT are also nearing resolution and should thus further drive-down the corporate NPA book for banks. Thus, we believe that the receding NPA formation and most banks sitting on higher specific PCR should lead to continued lower LLP and support profitability, the brokerage said in a note.
Meanwhile, Morgan Stanley believes the rally in state-owned (SoE) banks has more legs to run. “SoE banks have done well, and we expect continued strong performance helped by higher margins, sustained loan growth and improving operating leverage over the next few years,” the US-based brokerage has said in a note. CLICK HERE FOR FULL REPORT
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