PSU bank stocks down 20-60% from peak levels; is there buying opportunity?

NEW DELHI: Select state-owned bank stocks such as SBI and Bank of Baroda still keep their lustre intact with analysts even after the image of the entire PSU banking basket took a big knock from the PNB scam.

The nature of the alleged Rs 11,400 crore PNB fiasco has diminished the confidence level in the bank in particular and PSU lenders in general. "Add to this RBI’s recent directive on doing away with previous loan restructuring dispensations," said Nomura India, which believes that a re-rating for PSU banks looks unlikely in the near term.

That said, the brokerage believes that operating performance of banks with considerable corporate portfolios will improve from H2 CY18. The brokerage has a 'buy' rating on SBI and BoB.


A total of 22 PSU banks made Rs 66,733 crore in provisions and contingencies during the December quarter, up from Rs 53,920 crore in the September quarter and just about Rs 37,000 crore in the March quarter.

Data available with Capitaline showed that 16 of 22 listed PSU banks reported losses in the third quarter as against 11 in the preceding one and 9 in the June quarter. No surprise then, 5 of every 7 PSU bank stocks trading on the BSE had hit their 52-week highs before June 2017. (SEE TABLE)

The central government essentially does not seem to be too aligned towards shareholder value creation unlike some private or NBFC players, Dipen Sheth, Head–Institutional Research, HDFC Securities, told ET Now.

"But does it mean that PSU banks are a complete washout? If you tell me the entire PSU pack is junk, that is a complete exaggeration. Instances like SBI and BoB come to mind immediately. Both BoB and SBI are run by excellent managements, but they have gone through their hassles and failures in life," Sheth said.

Data suggest that except for Vijaya Bank, Indian Bank and Syndicate Bank, the rest of all PSU banks had gross NPAs in excess of 10 per cent of the total advances by the end of the December quarter.

But Edelweiss Securities noted that four major accounts i.e. Essar Steel, Bhushan Steel, Bhushan Power and Binani Cement have a cumulative debt of Rs 1.5 lakh crore and the ongoing resolution development may help resolve over 15 per cent of their gross non-performing loans. The brokerage sees SBI, Canara Bank and IDBI Bank as key beneficiaries.

"The current set of volatility associated with the PSBs and the consequent fall because of noises getting created about various wilful defaulters are just noises. It really does not affect balancesheets of these public sector banks," said Mahantesh Sabarad, Head-Retail Research, SBI Cap Securities.