PSU banks’ net profit jumps over 40% so far in FY23; Emkay Global positive on these three 3 lenders

Public sector banks (PSBs) have reported a strong set of financial numbers in the nine months ended December 31, 2022, with the combined net profit of 13-listed PSUs surging 43.90 per cent YoY to Rs 70,887.8 crore during April-December 2022 period, data compiled from corporate database Ace equity suggests. Net interest income (NIIs) for these 13 lenders jumped 20 per cent YoY to Rs 2,66,935.1 crore.

Thanks to robust earnings, shares of state-owned lenders outdid the banking benchmark in the past one year. The Nifty PSU Bank index gained 42.70 per cent in the last one year compared with a 4.3 per cent rise in Nifty50 and 14.20 per cent rise in Nifty Bank during the period mentioned.

On a standalone basis, Bank of India has registered the highest NII growth of 46.4 per cent YoY to Rs 14,751.1 crore for the nine months ended December 2022. It was followed by Indian Overseas Bank (IOB) Rs 5,978.8 crore (up 27.2 per cent YoY) and Bank of Maharashtra Rs 5,552.4 crore (up 25.3 per cent).

With an NII of Rs 29,831.2 crore, Bank of Baroda witnessed a growth of 24.2 per cent YoY. The Jammu & Kashmir Bank saw NII of Rs 3,496 crore, up 19.1 per cent.

The country’s biggest lender by assets State Bank of India (SBI) emerged as the most profitable bank in the PSU space in FY23 so far. The net profit of the bank jumped 48.6 per cent YoY to Rs 33,537.9 crore in 9MFY23. Bank of Baroda posted a 69.9 per cent YoY rise in net profit at Rs 9,334.3 crore. Canara Bank (Rs 7,429 crore), Union Bank (Rs 5,651 crore) and Indian Bank (Rs 3,834.4 crore) reported a profit growth of 85.2 per cent, 49 per cent and 30 per cent YoY, respectively, in 9MFY23.

Brokerage Emkay Global Financial Services believes that the recent volatility in stocks and strong fundamentals provide an entry point in the sector.

In a report, the brokerage said “Overall credit growth remains strong, but deposit growth needs to pick up the pace as the banking system’s credit growth moderated slightly but remains robust at 16.1 per cent YoY for the fortnight ended Feb 10, 2023 against 16.3 per cent the previous fortnight), fuelled by broad-based retail growth and supported by the corporate book as well. “

Deposit growth has picked up from the lows of 8 per cent in November 2022, even as it continues to be a laggard, at 10.2 per cent YoY, it said.

Asset quality for the banking sector has been on the mend, with the gross NPA ratio down by 53 bps to 5.2 per cent for PSBs, it said.

Emkay Global said that “Post the strong outperformance, the banking sector has seen correction in the past few months due to increasing macro/policy concerns and the recent Adani saga. Notwithstanding the macro dislocations, Emkay Global believes the banks are likely to witness healthy credit/earnings growth, with enough capital and provision buffers in place.”

Meanwhile, Emkay said the risk of default remains remote and low in the case of bank’s Adani group’s exposure. Emkay Global expects Q4 results to be equally strong for banks, particularly corporate banks benefiting from the reviving growth as well as improving asset-quality resolutions.

Emkay Global remains positive on the sector and favours Bank of Baroda, SBI, and Indian Bank in the PSU segment.

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