“tall PSU Bank , state Bank of India (State Bank of India), Bank Of Baroda (BOB), Canara Bank And Union Bank – is well provided and therefore untouched by the shock of a major account spoilage,” said S Ranganathanhead of research LKP Securities, “Recoveries from bad loans are also strong. In fact, some banks are expecting recovery of up to ₹30,000 crore just from written off accounts, which is more than their market cap. State Bank Of India, for example, could easily fetch 1.5x its book value, which is now about 1.1x, due to the vast opportunity in the future. even smaller lenders like the Central Bank or UCO Bank rated so low that upwards is almost guaranteed.”
Benefit from integration of banks such as Andhra and Corporation or Syndicate with Canara Bank with Union Bank, increased adoption of digital technology and a wide branch network also puts them at an advantage to garner higher market share, which they see in the private sector. are lost from. peers.
Siddharth Purohit, Fund Manager, InvesQ Investment Advisors, said, “Investors can no longer ignore the PSU Bank story. The clean-up has been done and is now well made available to all PSU lenders.” “With credit demand, especially retail demand so strong, they are in a good position to take advantage.”
Bankers say they do not see any signs of weakening credit demand.
SBI Chairman Dinesh Khara forecast SBI’s credit growth at 14% to 16% for the fiscal, up from 10% to 12% projected at the start of the year, as demand from both corporate and retail sectors remained strong Is.
Both SBI and BoB have reported record net profit in the second quarter of the fiscal on strong credit growth and falling provisions. However, not all public sector banks have performed well. based in Delhi PNB Net profit declined by 63%, mainly due to increase in provisions.
While analysts expect state-owned bank valuations to close the gap with their private sector counterparts, they are wary of making long-term bets because of the operational risks associated with their government ownership.
A senior analyst at a private brokerage said, “Government ownership brings many operational and performance risks. Also, in the long term, valuations will depend a lot on how these banks partner, creating co-lending opportunities. We do.”
Further, as deposits are revalued, all banks will be under margin pressure, which will also impact state-owned banks, said Purohit of InvesQ.
But for now, investors, especially those with high net worth, will seriously consider the low-value state-owned bank segment to improve their returns, which will increase their valuations, Ranganathan said.