PSU bank stocks are witnessing hectic activity these days and are now among the top traded stocks on the bourses.
A host of public sector banks firmed up last week, further extending their recent rally. Shares of the largest commercial bank SBI plumped up 8% to a 52-week high of Rs 341.90. Other PSU banks like Bank of Baroda, Oriental Bank of Commerce and Bank of India scaled 52-week highs as well.
The latest surge in banking PSU stocks is due to expectations that the banks will return capital to the Government of India (GoI), which will result in a lower equity base. This will boost the earnings per share of these banks. Andhra Bank has already returned Rs 50 crore of its capital to the GoI and it proposes to return another Rs 50 crore now. Similarly, OBC proposes to return Rs 50 crore to the GoI.
Analysts remain bullish on PSU bank stocks following their attractive valuations. The triggers for the rally in state-run bank stocks have been the current low interest regime, and improvement in the asset quality of banks (with most of them having written off non-performing assets against treasury income).
The rally in some prominent banks like SBI and BoB has emerged on expectations of strong Q4 and FY 2002-03 results and a further fall in net non-performing assets in FY 2002-03. While BoB is announcing its Q4 results next week on 27 May 2003, SBI is yet to announce the results declaration day. Analysts reckon that SBI and BoB are available at quite attractive valuations now.
The soft interest rate environment has helped banks to grow their retail loan portfolios. Their focus on the retail segment has also helped in boosting the financial performance (as there is a very low rate of default in repayment of loans in this segment). Public sector bank stocks have also risen on the back of the Securitisation Act, which aims at speeding up recovery of sticky assets without additional court procedures.
However, a court case is pending as to whether banks would be able to dispose off assets of defaulting borrowers. Pending this clarification, not much recovery is taking place on the corporate front, banking analysts said. Nevertheless, the Securitisation Act augurs well for the lending business as it would reduce incremental non-performing assets (NPAs) i.e. willful defaults by borrowers may come down drastically.
Meanwhile, OBC is hogging the limelight right now. The public sector bank, which has amongst the lowest net NPAs in its books, plans to bring NPAs down further. The stock has also been boosted by strong Q4 results that it unveiled last week.
On Monday, OBC reported a surge in its Q4 net profit. On a 30% growth in net interest income to Rs 347.27 crore, net profit rose 87% to Rs 119.49 crore. The bank undertook lower provisioning of Rs 102.49 crore, a fall of 59% whereas taxation provision (including deferred tax) increased 51% to Rs 108.71 crore.
For FY 2002-03, the bank reported a 43% growth in net profit to Rs 456.95 crore on a 24% growth in net interest income to Rs 1,204.75 crore. The rise in FY 2002-03 profit was mainly due to treasury operations.
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