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Shares of public sector banks (PSBs) were in focus on Monday with the Nifty PSU Bank index surging nearly 4 per cent on expectation of improvement in the banking industry's loans ratio amid favorable economic prospects. In the past two trading days, the index has rallied 6 per cent.
At 02:45 pm, Nifty PSU Bank, the top gainer among sectoral indices, was up 3.6 per cent, as compared to 0.64 per cent rise in the Nifty 50. Canara Bank, Bank of Baroda, Bank of Maharashtra, and Bank of India were up 4 per cent to 6 per cent. Punjab National Bank, Union Bank of India, Indian Overseas Bank, Central Bank of India, and State Bank of India, meanwhile, were up between 2 per cent and 4 per cent.
Gross non-performing assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) has nearly reached pre-Asset Quality Review (AQR) levels in the fourth quarter of the fiscal year 2022-23 (Q4FY23).
This trend is expected to continue in the fiscal year 2023-24 (FY24) due to several factors, including lower incremental slippages, a reduction in restructured portfolios, and healthy growth in advances driven by an uptick in economic activities.
SCBs have maintained a substantial buffer for provisions, which positions them well to address asset quality concerns, according to CARE Ratings.
SCBs have maintained a substantial buffer for provisions, which positions them well to address asset quality concerns, according to CARE Ratings.
S&P Global Ratings expects India's financial institutions, especially through public-sector banks, to sustain their improvement in capital positions. Bank earnings will also likely be comparable to other emerging market peers, although margins could decline as the banks reprice deposits.
The banking industry's weak loans ratio will continue to improve, in our view. The ratio was about 5.2 per cent of gross loans as of March 31, 2023. S&P Global Ratings expects this to decline to 3 per cent-3.5 per cent by March 31, 2025.
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Indian banks, namely the SCBs (mainly public sector banks and private sector banks), have sharply cut their high stock of problem assets accumulated during the previous downturn. They have also reduced economic imbalances.
"Calibrated credit growth and a strong focus on underwriting and risk management will limit the buildup of imbalances over the next two years. Banks will benefit from India's strong economic growth and better consumer and business confidence," the rating agency said in a recent rating action of four Indian financial institutions.
On June 26, S&P Global Ratings raised its long-term issuer credit ratings on Union Bank of India, Bajaj Finance, Shriram Finance, and Hero FinCorp Ltd. It affirmed the ratings on the remaining eight Indian financial institutions under their coverage.
The rating agency also revised upward its assessment of the stand-alone credit profiles (SACPs) of HDFC Bank, State Bank of India (SBI), and ICICI Bank by one notch each.
"We upgraded Union Bank to reflect our view that the bank will improve its asset quality over the next two years on the back of India's robust economic growth, better operating conditions, and the bank's improving internal risk management processes,” S&P Global Ratings said.
We expect Union Bank's funding and liquidity to stay strong, supported by high customer confidence in the Indian banking system," it added.
