PSU banks extend rally; SBI surges 15% in one week on strong Q2 results

In the past week, United Bank of India & Central Bank of India have rallied the most, up 43% and 37%, respectively, while Syndicate Bank, Andhra Bank, UCO Bank & Corporation Bank have gained up to 22%

Shares of public sector undertaking (PSU) banks continued their rally and were trading higher for the fifth straight session on Thursday. In the past one week, Nifty PSU Bank index has gained 12 per cent, as against a 3 per cent rise in the Nifty 50 index.

At 10:55 am, Nifty PSU Bank index, the largest gainer among all sectoral indices, was up 3.4 per cent, as compared to a 0.63 per cent rise in the Nifty 50 index. Nifty Bank and Nifty Private Bank indices, too, were up 0.88 per cent and 0.44 per cent, respectively.

In the past week, United Bank of India and Central Bank of India have rallied the most, up 43 per cent and 37 per cent, respectively. Syndicate Bank, Andhra Bank, UCO Bank and Corporation Bank, also, gained between 16 and 22 per cent on the National Stock Exchange (NSE).

The country's largest public lender State Bank of India (SBI) gained 4 per cent to Rs 302 in the intra-day trade today, surging 15 per cent in the past five trading days, after it reported good set of numbers for the September quarter (Q2FY20) along with strong management commentary.

Brokerage firm Motilal Oswal Financial Services expects the bank to deliver a return on assets or RoA of 0.4-0.5 per cent in FY20 and 0.9-1.0 per cent in FY21, led by credit growth of around 10/12 per cent.

"Net Interest Margin (NIM) is expected at 3.15-3.2 per cent, translating into a net interest income (NII) growth of 17/14 per cent for FY20/21, non-interest income growth of 15 per cent for both years with opex growth sustaining at <10 per cent and a slippage ratio of 2.0/1.3 per cent in FY20/21, leading to credit cost of 1.8/1.0 per cent," it said in a results update note.

Furthermore, the bank, during its analysts' call, guided corporate slippages at Rs 22,000 crore/Rs 12,000 crore for FY20/21, significantly lower than the historical run-rate. 

Analysts at JP Morgan have ‘overweight’ rating on SBI with March 2020 target price of Rs 375 per share. The foreign brokerage firm thinks the bank’s core ROE will reflate from FY20 onward as the company crosses the “hump” on provisions and NPL recognition over FY19. With the large part of credit costs and operating costs behind it in FY19, SBI should start reverting to normalized profitability from FY20 onward, and the bank should hit the target ROA of 0.8-1 per cent (consolidated) F21/22 onwards.

COMPANY	LATEST	ONE-WEEK	GAIN(%)
UNITED BANK (I)	10.05	7.12	41.2
CENTRAL BANK	23.50	17.10	37.4
SYNDICATE BANK	30.45	24.70	23.3
ANDHRA BANK	19.35	16.10	20.2
UCO BANK	13.84	11.72	18.1
CORPORATION BANK	16.90	14.40	17.4
ST BK OF INDIA	302.25	262.70	15.1
ALLAHABAD BANK	29.40	25.80	14.0
BANK OF INDIA	71.80	64.05	12.1
UNION BANK (I)	57.60	51.45	12.0
PUN. & SIND BANK	20.30	18.20	11.5
PUNJAB NATL.BANK	66.15	59.75	10.7
BANK OF MAHA	11.79	10.68	10.4
CANARA BANK	204.45	187.65	9.0
I O B	10.60	9.74	8.8
ORIENTAL BANK	54.65	50.25	8.8
BANK OF BARODA	97.10	89.90	8.0
INDIAN BANK	132.50	123.70	7.1