PSBs extend gains on hopes of firm Q4; Nifty PSB index zooms 13% in 1 month

Shares of public sector banks (PSBs) continued their northward movement gaining nearly 2 per cent on the National Stock Exchange (NSE) in Tuesday’s intra-day trade amid expectations of strong earnings for March quarter (Q4FY23), helped by a decline in non-performing assets (NPAs), moderation in slippages, double-digit credit growth and rising interest rate.

At 12:48 pm; Nifty PSU Bank index, the top gainer among sectoral indices, was up 1.8 per cent as compared to a 0.10 per cent rise in the Nifty50. In the past one month, the PSU Bank index rallied 13 per cent as against a 4.6 per cent gain in the Nifty50 and 8 per cent surge in Nifty Bank and Nifty Private Bank index.

Among the individual stocks, Indian Bank and Uco Bank were up 3 per cent, Bank of Baroda, Indian Overseas Bank, Central Bank of India, Canara Bank and State Bank of India were up 2 per cent on the NSE.

The banking sector is likely to post good numbers in the fourth quarter ended March 2023, and the total profit of PSBs is expected to touch a record high of Rs 1 trillion in FY23, aided by the decline in bad loans and healthy loan growth, said a report by PTI.

For the first nine months of 2022-23, all 12 PSBs have earned a cumulative profit of Rs 70,166 crore compared to Rs 48,983 crore in the year-ago period, an increase of 43 per cent.

Most banks have recorded healthy loan growth in the fourth quarter despite rising interest rates, the news agency reported quoting a senior bank official. CLICK HERE FOR FULL REPORT

Meanwhile, according to Motilal Oswal Financial Services (MOFSL), earnings growth is likely to remain healthy for PSBs, aided by healthy margins and a constant reduction in the credit cost. However, opex is likely to remain elevated as banks provide for wage revisions, which could slightly impact the operating profitability. Treasury performance is likely to remain stable.

Loan growth is likely to remain healthy; however, traction in deposits and a rise in the cost of funds would influence the margin trajectory in the medium term. The credit cost is likely to remain stable as asset quality improves further, MOFSL said in its results preview report.

According to analysts at Emkay Global Financial Services, for PSBs, weak treasury and PLI payout (except for Indian Bank) should limit PPoP growth at 17 per cent YoY, but lower provisions are expected to support profitability (up 55 per cent YoY/-7 per cent QoQ).

“We expect NPA provisions to fall on a QoQ basis with the bulk of PCR build-up largely done, while NPAs continue to trend downwards. However, recent prescription by the RBI to build specific provisions on large conglomerates would call for some additional provisions for corporate-heavy large banks,” the brokerage said in a sector update.

Meanwhile, state-owned Bank of Maharashtra (BoM) on Monday reported a more than two-fold jump in its net profit to Rs 840 crore for Q4FY23, helped by a decline in bad loans and a rise in interest income. The bank had earned a net profit of Rs 355 crore in the year-ago period.

Net interest income (NII) grew by 35.6 per cent YoY and 10.5 per cent QoQ to Rs 2,187 crore. Net interest margin improved to 3.56 per cent from 3.15 per cent in the year-ago period.

Asset quality of the bank also improved during the quarter with gross non-performing assets (NPAs) falling to 2.47 per cent of gross advances as of March 31, 2023 from 3.94 per cent by the end of March 2022. Net NPAs also came down to 0.25 per cent of the advances from 0.97 per cent at the end of 2022.