Nifty PSU Bank index surges 2%; Canara Bank, Bank of Baroda gain over 3%

Shares of public sector undertaking (PSU) banks were in focus on Monday with the Nifty PSU Bank index surging over 2 per cent on the National Stock Exchange (NSE) in the intra-day trade. The rally comes amid expectations of strong earnings recovery in state-owned lenders.

Canara Bank, Indian Bank, Bank of Baroda, and Bank of Maharashtra advanced in the range of 3 per cent to 4 per cent, while State Bank of India (SBI), Punjab National Bank, Union Bank of India, and Bank of India gainied between 1 per cent and 2 per cent.

At 11:23 AM, the Nifty PSU Bank index was the top performing sectoral gainers, and was up 2.5 per cent, as compared to 0.42 per cent rise in the Nifty50 index. Nifty Bank, Nifty Financial Services, and Nifty Private Bank index were up 1 per cent each.

With moderation in yields, analysts expect PSU banks to see treasury gains/reversal of treasury losses in the September quarter (Q2FY23). Thus, other income should witness a meaningful jump on a sequential basis.

PSU banks might see loan growth in-line with the system, while net interest income (NII) growth may be higher at 15 per cent year-on-year (YoY), analysts at Prabhudas Lilladher said in their Q2 earnings preview report.

The brokerage firm expects NIMs – net interest margin – to remain steady QoQ, around 3 per cent levels. Asset quality could improve QoQ with GNPA declining leading to controlled credit costs. Earnings are expected to be better as NII, and fee income improve with controlled opex, analysts said.

Meanwhile, those at ICICI Securities expect earnings momentum to continue to remain strong led robust credit offtake, improvement in margins led by yield repricing and rising CD ratio, absence of treasury losses, and steady slippages leading to stable credit cost.

” We expect strong commentary in terms of resilience in credit demand and, thus, outlook on business momentum. While operational performance is expected to remain positive across lenders, given steadier yields, robust recovery in earnings is expected in PSU banks,” the brokerage firm said in a report.

Separately, CARE Ratings said SBI’s credit costs are expected to remain moderate and profitability is expected to improve over the coming quarters as the bank has repayment of sizeable amount of its Available For Sale (AFS) investment portfolio to be redeemed which would reduce the mark-tomarket (MTM) losses.

The bank’s home loan portfolio and ‘Xpress credit’ portfolio constitute 56 per cent and 25 per cent, respectively, of the bank’s retail loans. Although the bank has witnessed growth in the corporate advances, the bank’s focus on retail is expected to continue and drive growth in the near term, the rating agency said in rationale.