PSU banks extend gain; Bank of Baroda surges 21% in a week

The State Bank of India (SBI), Allahabad Bank, Syndicate Bank and Andhra Bank were up 9 per cent each on the NSE during the week

Shares of public sector banks continued their upward movement with Nifty PSU Bank index surging 10 per cent thus far in the current week compared to a 2.5 per cent rise in the benchmark index.

At 11:10 am, Nifty PSU Bank index, the largest gainer among sectoral index, was up 3.6 per cent, as compared to a 0.6 per cent rise in the Nifty 50 index.

Among the individual banks, Bank of Baroda surged 21 per cent during the week, while Bank of India, Bank of Maharashtra, Indian Bank, Oriental Bank of Commerce and Canara Bank were up 10 to 15 per cent. The State Bank of India (SBI), Allahabad Bank, Syndicate Bank and Andhra Bank were up 9 per cent each on the NSE.

Analysts expect the new government to address the recaptialisation of banks to boost growth and merger of weaker banks with stronger banks.

Plagued by higher corporate slippages and credit cost, the banking sector, particularly PSU banks, have recorded lower profit or even losses in some instances.  As a result, credit, primarily dominated by services and retail, grew at a CAGR of 10 per cent since May 2014 while industrial credit (which is almost one-third of total credit) took a backseat and stagnated at Rs 27 trillion over the past three years, barring the past 4-5 months, analysts at Elara Capital said in India Strategy report post election results.

The brokerage firm believes recognition of corporate NPA and likely recovery from the Insolvency and Bankruptcy Code (IBC) cases will help corporate credit growth gather momentum and evident from the spurt in corporate credit over the past 4-5 months.

To this end, recapitalization of PSU banks will be key agenda point that the new government is likely to address. Public sector banks (PSB) mergers could be another option wherein weaker PSB that are struggling to meet core capital requirements could be merged with stronger banks. Weaker PSBs that are struggling to meet core capital requirements could be merged with stronger banks, it added.

“The government will continue to focus on consolidation in PSU Banks by merger of smaller banks into larger banks. The government’s budget allocation has negligible capital infusion plan and as capital requirement for smaller banks still remain much higher and market raising will be not conducive; hence merger will be only option,” analysts at Prabhudas Lilladher said in a report.

“For corporate lenders slippages and stress loans have peaked and we expect credit cost to normalize. Large cap corporate banks are adequately capitalized (SBI relatively lower at this). Any pick-up in investment cycle should benefit corporate lenders. We believe banks with a strong liability franchise are likely to emerge as better bets in this cycle,” analysts at Antique Stock Broking said.

COMPANY	LATEST	1-WEEK BEFORE	GAIN(%)
BANK OF BARODA	135.20	112.25	20.45
BANK OF INDIA	93.50	81.70	14.44
BANK OF MAHA	15.80	14.20	11.27
INDIAN BANK	262.00	235.65	11.18
ORIENTAL BANK	99.25	89.95	10.34
CANARA BANK	270.15	245.55	10.02
SYNDICATE BANK	35.25	32.15	9.64
ALLAHABAD BANK	46.70	42.60	9.62
ST BK OF INDIA	349.50	319.25	9.48
ANDHRA BANK	25.10	23.00	9.13