PSBs trade weak; PNB, Allahabad Bank, Indian Bank, OBC hit 52-week lows

Shares of public sector banks (PSBs) were under pressure on Wednesday with Punjab National Bank (PNB), Allahabad Bank, Indian Bank, and Oriental Bank of Commerce (OBC) hit their respective 52-week lows on the National Stock Exchange (NSE) in an otherwise strong market.

Beside these three banks, Bank of Baroda, Punjab and Sind Bank, Indian Overseas Bank, and Union Bank of India were also down in the range of 2 per cent to 3 per cent.

At 02:01 pm, the Nifty PSU Bank index -- the top loser among sectoral indices -- was down 2 per cent, as compared to 0.79 per cent rise in the benchmark Nifty 50 index. Nifty Bank and Nifty Private Bank index were up 0.57 per cent each.

According to media report, the Centre might approve the scheme for amalgamation of 10 PSBs into four. Subsequently, the boards of all the 10 PSBs will meet to approve the swap ratios.

Last year in August, the government announced merger of United Bank of India and Oriental Bank of Commerce with PNB, making the proposed entity the second largest PSB. It was decided to merge Syndicate Bank with Canara Bank, while Allahabad Bank with Indian Bank. Similarly, Andhra Bank and Corporation Bank are to be consolidated with Union Bank of India.

Among individual stocks, PNB hit an over 15-year low of Rs 55.15, down 3 per cent on the BSE. The stock was trading at its lowest level since November 17, 2004. It fallen below its previous low of Rs 55.70 touched on October 2019.

PNB reported a loss of Rs 490 crore for the quarter ended December 2019 (Q3FY20), mainly due to higher loan loss provisions (LLP), including provisioning divergence for FY19 and the re-alignment of its provisioning policy on some common exposures with merging United Bank of India and OBC Bank.

Analysts at Emkay Global Financial Services expect the bank’s return ratios to remain subdued for a prolonged period given continued weak asset quality, which should lead to higher LLP. Recent capital infusion by the government (Rs 16,090 crore) is positive for an otherwise capital-starved bank with its Tier I at 11.9 per cent but would be largely consumed for the merger of United/OBC by year-end, it added.

Allahabad Bank too hit a multi-year low of Rs 15.15, down 7 per cent today, after reported loss of Rs 1,986 crore for Q3FY20, due to higher provisions on account of agriculture loans. The bank had posted loss of Rs 733 crore in the same period last financial year.

The bank’s gross NPA as a percentage of total advances stood at 18.93 per cent in the last quarter against 17.81 per cent in year ago quarter. However, net NPA reduced to 5.13 per cent from 7.70 per cent.