Nifty PSU Bank index surges 3%; PNB soars 7% on strong Q1 results

PSU Banks in focus post Q1 earnings: PNB, BoI, BoB, Uco Bank and IOB rallied over 3% each. SBI, Canara Bank, Union Bank of India, Indian Bank and Central Bank were up 2-3%.

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Shares of public sector undertaking (PSU) banks were in focus in Monday’s intra-day trade, with the Nifty PSU Bank index soaring 3 per cent on the National Stock Exchange (NSE) on the back of strong rally in Punjab National Bank (PNB), Indian Overseas Bank (IOB), Bank of India (BoI), Punjab & Sind Bank and Bank of Baroda (BoB) shares.

At 10:08 am; the Nifty PSU Bank index, the top gainer among sectoral indices, was up 3.03 per cent, as compared to 0.3 per cent gain in the Nifty 50.

The PSU Bank index hit an intra-day high of 7,500 today. The index is still 7.4 per cent away from its record high level of 8,053.30 touched on June 3, 2024. Meanwhile, the Nifty 50 index hit a new high of 24,980.45 in intra-day deals today.

The asset quality of Public Sector Banks (PSBs) exhibited positive trends during FY 2023-24. Both gross non-performing assets (GNPA) and net non-performing assets (NNPA) declined to their lowest levels in a decade. Additionally, the Capital to Risk-Weighted Assets Ratio (CRAR) remained comfortably above the regulatory limit. This achievement can be attributed to the concerted efforts focused on enhancing asset quality, embracing digitalization and implementing strategic reforms at various levels.

PNB, BoI, BoB, Uco Bank and IOB rallied over 3 per cent each. State Bank of India, Canara Bank, Union Bank of India, Indian Bank and Central Bank of India were up in the range of 2 to 3 per cent.

Among individual stocks, PNB surged 7 per cent to Rs 128.10 after the bank reported a robust 159 per cent year-on-year (YoY) growth in net profit at Rs 3,252 crore for the first quarter of the current financial year (Q1FY25). The state-owned bank had posted a profit of Rs 1,255 crore in the year-ago quarter (Q1FY24).

The bank’s Net Interest Income (NII) increased to Rs 10,476 crore in Q1FY25 from Rs 9,504 crore in Q1FY24, showing a 10.23 per cent growth YoY. The GNPA ratio improved by 275 basis points (bps) YoY to 4.98 per cent as of June 24, while the net non-performing asset ratio of the lender improved by 138 bps YoY to 0.60 per cent as of June 2024.

Financial Year 2024-25 looks promising as the Indian economy is likely to maintain its growth momentum. The government focus will continue to promote sustained, equitable and inclusive growth by focusing on Digitalisation & Ease of Doing Business, Infrastructure including Renewable Energy and Financial Inclusion, etc.

Coming to Banking sector outlook, banking industry is in better position with healthy credit growth outlook, sound capital adequacy and enhanced asset quality, said PNB in an exchange filing.

Meanwhile, PNB reported a healthy quarter characterized by a sharp decline in provisions. NII broadly stood in line, while NIM contracted marginally in Q1FY25. Pre-provision operating profit (PPoP) witnessed a slight miss amid higher opex in Q1 on account of Priority Sector Lending Certificates (PSLC) costs. Advances growth was robust, and management aims to improve its share in the Retail, Agriculture and MSME (RAM) portfolio, which will support margins, Motilal Oswal Financial Services said in the result update.

Asset quality continues to witness a sharp improvement as recoveries and w-off continued to stay at higher levels. PCR thus improved further to 88%, while asset quality ratios also improved SMA overdue (with loans over Rs 5 crore) remained under control at 0.16 per cent of domestic loans, while the bank continues to guide robust recoveries at 2x of slippages. Thus, it guided GNPA ratio to decline to ~4 per cent (earlier guidance of 5 per cent), while credit cost was guided at 0.5 per cent (earlier guidance at 1 per cent); the brokerage firm said and reiterates Neutral with a revised target price of Rs 135.