Shares of PSU banks have seen a decent run up of late, thanks to improved fundamentals and low valuations. PSU banks have turned profitable after 8-9 years as balance-sheet are cleaner and incremental credit costs are lower. In a detailed note, Dalal & Broacha Stock Broking said the performance of PSU banks is better at core income level, with credit growth improving and margins expanding along-with all-time low credit costs.
Dalal & Broacha Stock Broking said unlike the general perception, credit growth for PSU banks is being equally strong recently; as they are also participating in higher credit offtake witnessed in the economy. Blended credit growth for 12 PSU banks, which form more than 95 per cent of the total PSU banks put together, was at 20.9 per cent in H1FY23 against the industry average growth of 17.2 per cent, it noted. PSU banks’ credit offtake market share in total systemic credit has increased marginally from 56 per cent in FY21 to 56.4 per cent in H1FY23.
Dalal & Broacha Stock Broking noted the PSU banks are witnessing healthy deposit growth marginally ahead of the industry, which is a key challenge for all the banks currently. Blended deposit growth for PSU banks was at 9.9 per cent in H1FY23 against 9.6 per cent industry deposit growth for the same period. The total market share of the PSU banking pack in systemic deposits has come down from 61.5 per cent in FY21 to 60.4 per cent in H1FY23. But that is largely due to decline seen by Bank of India, PNB, Central Bank of India and IDBI Bank. Other banks including large banks SBI, BOB, Canara Bank have retained or rather increased their market share marginally.
Over the last 8-9 years, Dalal & Broacha Stock Broking said, PSU banks have aggressively provided for gross NPLs leading to higher credit costs, which had impacted their profitability. GNPLs of PSU banks in absolute terms has come down by 18 per cent in last 1.5 years to Rs 4.8 lakh crore as on H1FY23, it noted.
The brokerage expects strong PSU bank profitability is expected to continue going forward as well, thanks to pick-up in credit cycle, which is being seen after more than a decade.