Shares of public sector undertaking (PSU) banks were in focus in Monday's intra-day trade, with the Nifty PSU Bank index rising 3% on the National Stock Exchange (NSE) on the back of strong rallies 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 a.m., the Nifty PSU Bank index, the highest gainer among sectoral indexes, was up 3.03 percent, compared to 0.3 percent for the Nifty 50.
The PSU Bank index rose to an intra-day high of 7,500 today. The index is still 7.4 percent behind its record high of 8,053.30, set on June 3, 2024. Meanwhile, the Nifty50 index rose to a record high of 24,980.45 in intraday trading Thursday.
The asset quality of Public Sector Banks (PSBs) improved during FY 2023-24. Both gross non-performing assets (GNPA) and net non-performing assets (NNPA) fell to their lowest levels in a decade. Additionally, the Capital to Risk-Weighted Assets Ratio (CRAR) remained well above the statutory limit. This result may be ascribed to concerted efforts to improve asset quality, embrace digitization, and execute strategic changes at multiple levels. PNB, BoI, BoB, Uco Bank, and IOB all had gains of more than 3%. State Bank of India, Canara Bank, Union Bank of India, Indian Bank, and Central Bank of India all saw gains of 2 to 3 percent.
Among individual equities, PNB rose 7% to Rs 128.10 after the bank announced a healthy 159 percent year-on-year (YoY) gain in net profit at Rs 3,252 crore for the first quarter of the current fiscal year. In the prior quarter (Q1FY24), the state-owned bank made Rs 1,255 crore in profit.
The bank's Net Interest Income (NII) rose to Rs 10,476 crore in Q1FY25 from Rs 9,504 crore in Q1FY24, representing a 10.23 percent YoY rise. The GNPA ratio increased by 275 basis points (bps) year on year to 4.98 percent as of June 24, while the lender's net non-performing asset ratio increased by 138 bps to 0.60 percent as of June 2024.
Financial Year 2024-25 appears optimistic, as the Indian economy is expected to sustain its development trend. The government's priority will remain on promoting long-term, equitable, and inclusive growth through initiatives such as digitalization and ease of doing business, infrastructure, renewable energy, and financial inclusion, among others. In terms of banking sector prospects, PNB stated in an exchange filing that the banking industry is in a stronger position due to good credit growth, strong capital adequacy, and improved asset quality.
Meanwhile, PNB reported a strong quarter, highlighted by a substantial decrease in provisions. NII was essentially stable, whereas NIM fell slightly in Q1FY25. Pre-provision operating profit (PPoP) fell somewhat in Q1 due to higher operating expenses from Priority Sector Lending Certificates (PSLC) charges. Motilal Oswal Financial Services reported strong increase in advances and plans to strengthen its position in the Retail, Agriculture, and MSME (RAM) portfolio to boost profitability.
Asset quality continues to improve sharply, while recoveries and write-offs remain high. PCR increased to 88%, and asset quality ratios also improved. SMA overdue (with debts over Rs 5 crore) remained under control at 0.16 percent of domestic loans, while the bank continues to target solid recoveries at 2x slippages. The brokerage company has cut its target price to Rs 135, while guiding the GNPA ratio to 4% (previously 5%) and credit cost to 0.5% (formerly 1%). The firm remains neutral.
