Nifty PSU Bank index soars 4%; Indian Bank, BOB zoom up to 12% post Q2 nos

At 02:20 pm; the Nifty PSU Bank index was the top gainer among sectoral indices, up 4 per cent, as compared to 0.8 per cent rise in Nifty 50.

Shares of public sector banks (PSBs) were in focus with the Nifty PSU Bank index surging 4 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade after Indian Bank and Bank of Baroda (BoB) reported strong earnings for the second quarter of the 2024-25 financial year (Q2FY25).

 

At 02:20 pm; the Nifty PSU Bank index, was the top gainer among sectoral indices, up 4 per cent, as compared to 0.81 per cent rise in Nifty 50. Indian Bank, Canara Bank, BoB, Central Bank of India, Punjab National Bank (PNB) and Bank of India surged between 5 per cent and 12 per cent. State Bank of India (SBI), Indian Overseas Bank, Uco Bank, Punjab & Sind Bank and Union Bank of India were up in the range of 1 per cent to 4 per cent.

 

 

PSBs have seen a correction in the recent past amid concerns around slowing growth (so also banking system) and peaking RoAs. Overall, asset-quality outlook is stable to positive for the sector. Analysts believe banks with a robust capital base and strong retail deposit franchises are well-placed to capture growth opportunities.

 

Among individual stocks, Indian Bank moved higher by 12 per cent to Rs 556 on the back of heavy volumes after the state-run lender reported 36 per cent year-on-year (YoY) jump in net profit at Rs 2,707 crore in Q2FY25. The bank had posted a profit of Rs 1,988 crore a year ago. Net interest income (NII) was up 8 per cent YoY at Rs 6,194 crore. Gross NPA decreased by 149 bps YoY to 3.48 per cent in Q2FY25 from 4.97 per cent in Q2FY24; net NPA reduced by 33 bps to 0.27 per cent from 0.60 per cent.

 

ICICI Securities has a ‘Buy’ rating on Indian Bank with a target price of Rs 700 per share. Indian Bank delivered superior performance on both business growth and asset quality. While business growth remained steady, asset quality has been superior on a relative basis with lower NNPA and better PCR.

 

Addressing challenges amid tight liquidity market, focus on maintaining CASA at 40 per cent, increasing proportion of RAM (retail, Agri, and MSME) and higher CD ratio (at 77.5 per cent) is expected to enable relatively steady margins at 3.4-3.5 per cent in FY25E. While growth in the retail category amid improved digital customer experience, is seen to aid yields, disbursements in corporate loans (amid focus on new business opportunities including data center, city gas distribution and commercial real estate) is seen to aid business growth. Management is targeting advance growth at 12-13 per cent in FY25E, the brokerage firm said in its recent report.

 

Meanwhile, shares of BoB rallied 6 per cent to Rs 253.58 as the asset-quality profile of the bank improved during the reported quarter with gross NPAs declining to 2.5 per cent in Q2FY25 from 3.32 per cent in September 2023 (Q2FY24). Net NPAs declined from 0.76 per cent to 0.60 per cent.

 

BoB’s net profit during the quarter under review rose 23.2 per cent YoY to Rs 5,238 crore as compared to Rs 4,394.3 crore, due to moderation in fee income, surge in treasury gains and increased recoveries. NII grew moderately at 7.3 per cent YoY at Rs 11,622 crore, while net interest margin (NIM) was largely stable at 3.1 per cent.

 

Management indicated that 1/3rd of aviation exposure against guarantee has been recovered and the rest is under legal process. The management revised its guidance for FY25 with credit growth of 11-13 per cent and deposit growth of 9-11 per cent, while NIMs are likely to remain range-bound at 3.15 per cent +/-5bps.

 

BoB’s profitability rose due to treasury gains and recoveries, while reduced growth guidance reflects a focus on margin stability over aggressive expansion along with continued moderation in international business. Guidance on RoA remained steady at 1-1.1 per cent, ICICI Securities said in a note.

 

BoB reported a healthy quarter, characterized by higher other income amid accelerated recoveries from TWO. Provisions were higher than expected as the bank created prudent NPAs and standard assets provisions. BoB guides for a controlled credit cost of 0.75 per cent for FY25, which should support the return ratio of 1 per cent plus, according to Motilal Oswal Financial Services.  The brokerage firm, however, cut its FY25/FY26 EPS estimates by 4.7 per cent/4.8 per cent due to higher provisions, while expecting loan growth to be healthy and NIMs to be maintained at 3 per cent for FY25 and FY26. It estimates FY26 RoA/RoE at 1.1 per cent/15.7 per cent.