Nifty PSU Bank index hits record high; Indian Bank surges 22% in one week

In the past one week, Nifty PSU Bank index has rallied 12 per cent as compared to 3 per cent rise in Nifty50

Shares of public sector undertaking (PSU) banks were on a roll on Friday, with the Nifty PSU Bank index hitting an all-time high of 3,310, surging 3 per cent in today's intra-day trade on expectation of strong operational performance in the September quarter for the 2022-23 financial year (Q2FY23).

The Nifty PSU Bank index surpassed its previous high of 3,267.95, touched on September 15, 2022. In the past one week, the index has rallied 12 per cent, as compared to 3 per cent rise in Nifty 50. Indian Bank, Uco Bank, Punjab & Sindh Bank, Bank of India, Canara Bank, Union Bank and Bank of Maharashtra were up more than 3 per cent on the NSE in intra-day trade today. State Bank of India (SBI), Bank of Baroda, Indian Overseas Bank and Punjab National Bank gained between 2 per cent and 3 per cent.

On the earnings front, analysts expect PSU banks to see treasury gains/reversal of treasury losses in Q2FY23 with moderation in yields. Thus, other income should witness a meaningful jump on a sequential basis. The brokerage firm expects NIMs — net interest margin — to remain steady on the quarter-on-quarter (QoQ) basis, at around 3 per cent. Asset quality could improve QoQ with gross non-performing assets (GNPAs) declining, leading to controlled credit costs. Earnings are expected to be better as NII, and fee income improve with controlled opex, analysts said.

PSU banks might see loan growth in line with the system, while net interest income (NII) growth may be higher, at 15 per cent year-on-year (YoY), analysts at Prabhudas Lilladher said in their Q2 earnings preview report.

Meanwhile, among the individual stocks, Indian Bank hits a 52-week high of Rs 235.90 after the stock rallied 7 per cent on the NSE. The stock has zoomed 22 per cent in the past one week. Canara Bank, too, surged 5 per cent to Rs 270.60 in intra-day trade today, soaring 19 per cent in the past one week. The stock was trading close to its 52-week high level of Rs 272.80, which it had touched on February 3, 2022.

In Q2FY23, Canara Bank reported a healthy performance with 19 per cent year on year (YoY) net interest income (NII) growth driven by 8bp margin expansion in Q2FY23. This, coupled with healthy treasury gains and traction in fee income, drove overall earnings. Fresh slippages were stable at Rs 3,950 crore, while healthy recoveries and upgrades of Rs 3,400 crore along with higher write-offs worth Rs 2,800 crore led to improvements in asset quality ratios during the quarter.

Canara Bank reported a healthy operating performance supported by continued traction in loan growth and improvement in asset quality while expansion in margins drove NII, Motilal Oswal Financial Services said in result update.

The bank expects margins to remain healthy given the rising rate environment. Loan growth was led by the corporate segment and the outlook is encouraging as Canara Bank is looking for a decent double-digit growth in FY23E. Slippages were flat sequentially, thus asset quality ratios improved further underpinned by higher recoveries and upgrades. Decline in SMA overdue and restructured portfolio provides incremental comfort on asset quality trends, the brokerage firm said. It maintains ‘buy’ rating on the stock with target price of Rs 340 per share.

Shares of SBI were was up nearly 2 per cent at Rs 565.55, inching towards its record high level of Rs 578.65, which it touched on September 15. In the past one week, the stock has gained 7 per cent. Rating agency Fitch expects SBI’s retail business to remain the key growth driver, with the bank showing cautious optimism towards corporate and SME segments as interest rates rise. The bank is more focused on credit quality as its moderate capitalisation compels it to optimise capital utilisation.

“We expect SBI's impaired-loan ratio to continue to improve in FY23 (Q1FY23: 3.9 per cent), supported by lower fresh impaired loans and ongoing recoveries. A more meaningful unwinding of relief loans will likely test this trend in FY24, but loan impairment charges will likely remain below 1 per cent, provided there are no negative shocks from this pool of stressed Covid-19-affected loans. Specific provision cover on legacy impaired loans is 75 percent while overdue loans (between 30-90 days) are limited at 0.24 per cent,” Fitch said in key rating drivers.