Nifty PSU Bank index hits lowest level since July 2006; SBI at 52-week low

The PSBs have a relatively higher share of exposure in the SME segment, and thus, asset quality should remain under pressure in the near term, according to Motilal Oswal Securities.

Shares of public sector undertaking (PSU) banks were under pressure with Nifty PSU Bank index hitting an over 13-year low on the National Stock Exchange (NSE) on Tuesday on concerns over asset quality.

At 02:57 pm, Nifty PSU Bank index, the top loser among sectoral indices, was down 3.1 per cent at 1,207 points, as compared to a 0.67 per cent decline in the Nifty 50 index. The PSU Bank index hit an intra-day low of 1,204, its lowest level since July 21, 2006 on closing level basis. The index slipped below its previous low of 1,218 touched on March 13, 2020 on the NSE.

Among individual stocks, State Bank of India (SBI) was the top loser, hitting a 52-week low of Rs 168.80, tanking 6 per cent in the intra-day trade. Bank of Baroda (BoB) hit a multi-year low of Rs 44, down 4 per cent. Bank of India, Punjab National Bank (PNB), Union Bank of India and Canara Bank were down in the range of 2 per cent to 3 per cent. The PSU banks trade at a P/B of 0.8x, below their historical average of 1.2x.

According to Motilal Oswal Securities, the public sector banks (PSBs) have a relatively higher share of exposure in the small and medium-sized enterprises (SME) segment, and thus, asset quality should remain under pressure in the near term. The brokerage firm expects credit cost trends to remain elevated.

"The outbreak of Covid-19 has further weakened credit growth of PSBs. Thus, loan growth is likely to moderate to 8 per cent for SBIN and to 7 per cent for BoB over FY21E. On the other hand, liability franchise remains stable with surplus liquidity being available with banks. PSBs are expected to be big beneficiaries of the state government’s deposit outflows from mid-size/smaller banks post the YES Bank episode, the brokerage firm said in a note.

Meanwhile, BOfA suggests, PSBs will need between Rs 52,990 crore to Rs 113,550 crore ($7 billion – $15 billion) in recapitalisation going ahead, which can be funded by the government despite the limited fiscal room. The brokerage suggests the government issues recapitalisation bonds and/or utilise Reserve Bank of India’s (RBI’s) revaluation reserves. CLICK HERE TO READ FULL REPORT