Download Unicorn Signals App

Powered By EquityPandit
 Signals, Powered By  EquityPandit
MARKETS

PSU Banks Hold Firm in Weak Market, SBI Nears Record High

Recently, SBI raised Rs 10,000 crore through its maiden issue of infrastructure bonds for funding the infrastructure and affordable housing segments.

Shares of public sector undertaking (PSU) banks traded stronger, with BSE shares up 4% in intraday trade on Tuesday, on expectations of solid earnings momentum in the coming quarters.

The Nifty PSU Bank Index hit a fresh high of 4,196 in intraday trade and was up 0.82% at 4,185.90 at 9:30 am. The Nifty 50 index fell 0.50% to 18,607 points.

Bank of India, Bank of Baroda, Bank of Maharashtra, UCO Bank, Punjab Sind Bank, Indian Overseas Bank, Union Bank of India and Central Bank of India rose between 1% and 4% on the NSE. Bank of India, Bank of Baroda and Punjab and Sind Bank hit 52-week highs each today.

In the July-September quarter (Q2FY23), the State Bank of India (SBI) reported a 39 bps QoQ decline in GNPA and a 9 bps decline in restructuring (R/s) book. Bank of Baroda continued to run healthy in terms of asset quality, with GNPA down 95 bps, while the restructuring pool was also down 30 bps quarter-on-quarter.

ICICI Securities analysts believe that asset quality trends should continue to improve, while management comments suggest that incremental pressure will decrease.

Meanwhile, SBI shares were up 0.32% at Rs 619.30 in intraday trade, having gained 2% in the past two sessions. It quoted near the all-time high of Rs 622.70 on November 7, 2022.

Last week, the state-owned lender raised Rs 10,000 crore in its debut infrastructure bond offering with a coupon rate of 7.51%. It is the most powerful single infrastructure bond issued by any bank in the country. Funds raised through the bonds will be used to increase long-term resources for financing the infrastructure and affordable housing sectors, SBI said in a release. For these instruments, the bank has AAA credit ratings from domestic credit rating agencies.

The ratings reflect the bank’s strong resource profile, supported by a high share of current and savings account (CASA) deposits, resulting in highly competitive funding costs and a well-established deposit base. In its rationale, ICRA said SBI’s liquidity remains superior, given its strong resource position.

The rating also considers SBI’s healthy capital position and strong operating profitability, which can absorb unforeseen pressure on asset quality. The bank has also made progress over the past few financial years through internal capital appreciation to support its credit growth ambitions.

ICRA believes that SBI’s incremental capital requirements remain constrained for targeted growth while maintaining a buffer of at least 100 bps on the regulatory ratio. In addition, the bank’s ability to raise capital from the market, if required, remains strong.

The stable rating outlook is a factor in ICRA’s view that SBI can still absorb any unexpected asset quality shocks through its operating profits, given the high reserve coverage of legacy accounts. Furthermore, ICRA expects SBI to benefit from its dominant position in the Indian banking sector, strong financing capabilities, robust resource profile and sovereign ownership.

Given the bank’s exposure to stressed corporates, early delinquencies and restructurings (about 0.9% of net advances in end-September 2022), and loan assets backed by the Emergency Credit Line Guarantee Program (under which payouts through FYE22 were about 1.3%), India Ratings and Research (Ind-Ra) estimates gross slippage below 2% for both FY23 and FY24. Its restructuring assets in H1FYE23 are lower than most banks. Legacy provisioning will be manageable given that provisioning for non-performing assets (excluding technical write-offs) exceeds 75% in H1FYE23.

Ind-Ra expects the SME sector to continue to lead to declines, especially restructuring assets, accounts backed by government guarantee lines and agriculture; however, Ind-Ra expects these to be easily absorbed by banks.

Get Daily Prediction & Stocks Tips On Your Mobile