State-owned banks lag even as market recoups losses

Earnings of PSBs have disappointed in the past few quarters due to high bad loan provisioning & low credit growth

The benchmark Nifty has recovered all its losses seen in September to end at a record high on Friday. Most private sector banks have led the latest pullback seen in the market. But, public sector banks (PSBs) continue to languish with some lenders extending last month’s fall. 
 

Experts say investors are staying away from PSBs on concerns of poor asset quality and low growth prospects due to paucity of capital.  

Earnings of PSBs have also disappointed in the past few quarters due to high bad loan provisioning and low credit growth. With PSB stocks lagging in the latest rally, it also shows expectations from the September quarter are low.

Shares of State Bank of India (SBI) are down by nine per cent since September and are up just a per cent on a year-to-date (YTD) basis. Bank of Baroda (BoB) is flat since September and down nine per cent YTD. IDBI Bank, among the worst performing PSB stocks, is down four per cent since September and has lost a quarter of its value in 2017.

On the other hand, most private sector banks have outperformed the Nifty, both on a YTD basis and since September. Since September 1, Kotak Mahindra Bank is up nine per cent, while HDFC Bank, Axis Bank and Yes Bank are up more than four per cent each. 

“In the current scenario, private banks have a clear edge over PSBs. These banks are mostly retail focused and have relatively less exposure to the stressed sectors. Hence, their asset quality looks better. For PSBs, the pain is far from over. High toxic assets and slowdown in lending would continue to impart pressure on the PSBs,” said an analyst.