Shares of public sector banks (PSBs) were in focus on Monday with State Bank of India (SBI) hitting a new high, while Canara Bank and Indian Bank hitting their respective 52-week highs in the intra-day trade on expectation of strong earnings for the quarter ended September 2021 (Q2FY22).
The Nifty PSU Bank index hit a record high of 2,914.05, surpassing its previous high of 2,883.75, touched on October 22, 2021. At 12:20 pm, the Nifty PSU Bank index was up 2.3 per cent, as compared to a 0.28 per cent rise in the Nifty50 index.
In the past one month, the index has rallied 21 per cent, as against a 1.6 per cent rise in the Nifty50 index. Individually, Indian Bank, Union Bank of India, Canara Bank and Bank of Baroda soared between 25 per cent and 49 per cent during the period.
Meanwhile, in today’s session, SBI hit a fresh record high of Rs 515.45, up 2.5 per cent on the NSE in the intra-day trade, surging 15 per cent in the past one month. SBI appears well-positioned to report a strong uptick in earnings, led by moderation in credit costs, as the bank has strengthened its balance sheet and increased its PCR to around 86 per cent, according to analysts.
The banking sector had seen a sharp decline in business activity owing to lockdowns, especially in April and May 2021. However, trends from July 2021 onwards show faster return towards normalisation, especially on the asset quality front. Most lenders have indicated at an improvement in collections with unlocking of the economy.
“Among PSU banks, the legacy asset quality issues are behind and retail NPAs, if any, are not expected to be lumpy keeping scope for provisions under check and earnings improvement,” analysts at ICICI Securities said in banking and financial services sector view report.
Motilal Oswal Financial Services estimate PSBs to report improved operating performance, supported by modest business growth and a gradual reduction in provisions. “Opex is likely to remain elevated on account of the revised guidelines on pension provisions. Slippages from SREI Infra are likely to be offset by recoveries from the DHFL resolution. PSBs are expected to deliver NII/PPoP growth of around 2 per cent/7 per cent year on year (YoY) and profit after tax (PAT) growth of around 35 per cent YoY,” it said in a preview report.