Nifty PSU Bank index soars 3% on strong Q2 earnings by PNB, Canara Bank

For the quarter ended September 2023, PNB reported a solid 327 327 per cent YoY surge in net profit, while Canara Bank's net profit grew 42.8 per cent.

Shares of public sector banks (PSBs) were are trading higher by up to 6 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade after Punjab National Bank (PNB), Canara Bank and Indian Bank reported a healthy set of numbers for July-September quarter (Q2FY24), with improvement in assets quality.

At 10:08 AM; Nifty PSU Bank index, the top gainer among sectoral indices, was up 3.3 per cent, as compared to 0.84 per cent rise in the Nifty 50. Bank of India and Canara Bank rallied 6 per cent, while Union Bank of India, PNB, Indian Overseas Bank, Indian Bank, Bank of Maharashtra, Uco Bank and Bank of Baroda were up in the range of 3 per cent to 5 per cent. State Bank of India was up nearly 2 per cent.

Canara Bank’s net profit for Q2FY24 grew 42.8 per cent year-on-year (YoY) to Rs 3,606 crore, due to a substantial rise in net interest income (NII) and stable asset quality.

NII expanded 19.8 per cent to Rs 8,903 crore in Q2FY24, compared to Rs 7,434 crore in the same quarter a year ago. The bank’s net interest margin (NIM) expanded to 3 per cent in Q2FY24, compared to 2.8 per cent in Q2FY23. The bank has guided for NIM to be about 3.05 per cent for FY24.

The asset quality profile improved, with gross NPAs declining to 4.8 per cent in Q2FY24 from 6.4 per cent in Q2FY23. Net NPAs declined to 1.4 per cent in Q2FY24 from 2.2 per cent in the year-ago quarter.

Canara Bank's NIMs compressed 5bp QoQ; however, we expect margins to remain broadly stable going forward as MCLR re-pricing offsets the pressure on funding costs, Motilal Oswal Financial Services (MOFSL) said in the result update. 

Loan growth was led by Corporate, Retail, and Agri segments and the outlook remains steady. Slippages and SMA book improved sequentially, which supported improvements in asset quality ratios, the brokerage firm said.

PNB also reported a healthy quarter, with net profit surging 327 per cent YoY to Rs 1,760 crore, on lower-than-expected provisions. NII grew 20 per cent YoY to Rs 9,900 crore; NIMs improved 3bp QoQ to 3.11 per cent in Q2FY24. NII growth was healthy QoQ supported by steady margins and healthy growth in RAM segments.

The bank's asset quality continued to demonstrate a sharp improvement. The slippages declined 24 per cent quarter-on-quarter (QoQ) to Rs 1,800 crore (0.9 per cent YoY). GNPA/NNPA ratios improved 77bp/51bp QoQ to 7 per cent and 1.5 per cent, respectively.

Asset quality continued to improve, aided by lower slippages and healthy recoveries, while PCR improved further to 80 per cent. SMA overdue (with loans over Rs 5 crore) remains under control at 0.2 per cent of domestic loans, while the bank continues to guide for robust recoveries. The bank has thus guided for a credit cost of 1.50-1.75 per cent for FY24 vs. >2 per cent in FY23, MOFSL said in the result update.

Meanwhile, Indian Bank reported steady performance on growth, profitability and asset quality. Margins declined around 10 bps QoQ to 3.5 per cent, primarily led by around 29 bps increase in cost of deposits, partially offset by improving yields, ICICI Securities said.

Healthy operational profit at 19 per cent YoY coupled with lower provision resulted in 62 per cent YoY increase in profit after tax at Rs 1,998 crore. Asset quality improved further with a decline in 50 bps at 5 per cent, while slippages run rate witnessed an uptick at 1.8 per cent, the brokerage firm said in a note.