Nifty PSU Bank Index Climbs 12% in Four Days; SBI nears record high

Shares of public sector banks (PSBs) continued their upward movement for the fourth day in a row, with the Nifty PSU Bank index gaining 12% during the period after Canara Bank reported a series of healthy figures for the December quarter (Q3FY22).

As of 1 p.m., the Nifty PSU Bank Index, which tracks the performance of public sector banks, was the top gainer among sector indices, up 2.8%. The index is 5% away from its all-time high of 3,054.75 reached on November 9, 2021 in intraday trading. In comparison, the Nifty50 index rose 1.7%, while the Nifty Bank and Nifty Private Bank indices rose 1% and 0.46% respectively on the National Stock Exchange (NSE).

Among individual stocks, Canara Bank hit a 52-week high at 252.80 rupees, after rising 6% in intraday trading. The stock has risen above its previous high of 247.60 rupees reached on November 9, 2021. In the past four trading days, Canara Bank’s market price has jumped 21% after the bank reported healthy earnings at the Q3FY22, led by robust net interest income (NII) / Loan growth and provisions under control.

Its NII rose 14% YoY to Rs 6,946 crore due to robust loan growth and healthy margin, while NIM improved 6bp QoQ to 2.83% , helped by the improvement in the credit-to-deposit (CD) ratio. Its net profit more than doubled year-on-year to Rs 1,502 crore.

In Q3FY22, Canara Bank’s asset quality improved as its Gross Non-Performing Assets (GNPA) ratio fell to 7.80% from 8.42% in September 2021 (Q2FY22), 8.50% in June 2021 (Q1FY22) and 8.93 percent in March 2021 (Q4FY21). The Net Non-Performing Assets (NNPA) ratio was reduced to 2.86% in Q3FY22, from 3.21% in Q2FY22, 3.46% in Q1FY22 and 3.82% in Q4FY21.

“Canara Bank delivered healthy operating performance supported by a recovery in loan growth, improved margins and robust asset quality. The bank has seen healthy growth in the business portfolio while RAM continues to grow at a healthy pace. Asset quality ratios improved further, supported by higher recoveries and upgrades while slippages remained under control. The decline in SMA’s lagging and restructured portfolio provides reassurance on asset quality trends, leading to a sustained reduction in its credit costs,” Motilal Oswal Financial Services said in an earnings update. The brokerage firm maintained a “buy” rating on the stock with a target price of Rs 300 per share.

Meanwhile, shares of State Bank of India (SBI) rose 3% to Rs 538.90, up 9% over the past four trading days. The share of the country’s largest public bank was trading near its record high of Rs 542.30 reached on November 3, 2021. SBI is expected to announce its Q3FY22 results on Saturday, February 5, 2022.

“SBI, being a government-owned entity, has historically traded at a discount to its private peers amid a lack of clarity on the decision-making front. However, with limited government intervention now, we we expect the valuation discount to decline with the increasing relevance of SBI,” the analysts at InCred Equities said.

“We are confident that the worst is already behind SBI on the asset quality front with sufficient provisioning buffer. The bank has streamlined its underwriting processes to introduce discipline in provisioning and lending techniques. limited government intervention and increased low-cost lending, we expect SBI to have higher quality assets,” they added.

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