PSBs extend rally; Nifty PSU bank surges 13% in six days

Shares of public sector banks (PSBs) were trading higher for the sixth straight trading days with Nifty PSU Bank gaining more than 10% during the period on the back of expectations of an improvement in the asset quality going ahead.

At 01:31 pm; Nifty PSU Bank index was up 2.2% at 3,014, surging 13.4% from 2,657 on May 18, 2018, as compared to 0.89% rise in the Nifty 50 index during the period.

Shares of Oriental Bank of Commerce, Union Bank of India, Punjab National Bank, Syndicate Bank, Indian Bank and Canara Bank were up in the range of 5% to 8% on the BSE. Shares of Bank of India, Andhra Bank, Corporation Bank, Allahabad Bank, Central Bank of India, Dena Bank and Bank of Baroda were up between 2% and 4%.

State Bank of India (SBI) - the country’s biggest lender reported its second straight quarterly loss of Rs 77.18 billion in March 2018 quarter (Q4FY18) on account of surging provisions for bad loans and erosion in profitability from its core lending and securities trade business. However, the stock currently trading 1.5% higher at Rs 271, bounced back post results, by gaining 11% since Tuesday, May 22, 2018.

“SBI reported higher loss on back of high slippages of Rs 336.7 billion, leading to interest income reversals & provisioning. Bulk of the slippages were from corporate and with 60% coming from the stressed pool (5/25, SDR, S4A & Restructured). Key positives were net interest margins (NIMs) held up despite interest reversals and despite taking RBI dispensation of 40% provisioning on NCLT List‐1, overall PCR & NCLT List‐1 PCR was at +50%,” analysts at Prabhudas Lilladher said in result update.

Bank’s stressed asset pool is now 1.3% of loans (down from 2.8% in Q3) and some large recoveries from NCLT a/c will help improve asset quality but keep provisioning high based on ageing leading to improving PCR, the brokerage firm said with retain ‘buy’ rating on the stock and 12 month target price of Rs 349 per share.

“This depicts that there was huge pessimism among the investors and traders, despite SBI reporting worst numbers stock price bounced higher suggesting that the worst may be over at least in the interim period. There is very little room left for the stock to go down further in the short term.  Also, the commentary of the management that the worst is over for the bank instills confidence that the coming fiscal is one of hope as there are chances of recovery of Rs. 780 billion from the cases in the first 2 lists of NCLT, , Jimeet Modi, Founder & CEO, Samco Securities & Stock said.

However, on further analysis it looks like smaller PSU banks such as Allahabad Bank, Punjab National Bank and a few others would recover a much higher amount in terms of percentage of their market cap from IBC resolutions compared to SBI, added Jimeet Modi.