PSU Banks To See Resilient Net Interest Margins In FY24: Credit Suisse
Loan growth picking up in the corporate segment should aid PSU banks' growth as well, according to the Credit Suisse note.
While Indian banks could see moderate net interest margins in FY24, after seeing expansion in the third quarter, PSU banks will be more resilient, according to Credit Suisse.
“While NIMs would moderate in FY24, PSU banks' NIMs should be more resilient given a higher share of the marginal cost of funds-based lending rate with slower repricing, lower loan-to-deposit ratios, and slower deposit rate increases," the brokerage said in its investor note.
Loan growth picking up in the corporate segment should aid the PSU banks' growth as well, the note said.
The state-owned lenders have been taking deposit rate hikes slowly, even as banks have been more "aggressive" in raising bulk term deposit rates, which are up 150 to 250 basis points, it said.
Hence, the NIMs of PSU banks may be more stable in the medium term, according to the brokerage.
Benign Asset Quality
Asset quality continues to remain supportive, the brokerage said.
Credit Suisse highlighted that share of debt with interest cover less than one below pre-Covid levels is at around 40%, citing its corporate health tracker.
Retail asset quality trends were also strong, it said.
Return On Equities To Improve
While PSU banks have witnessed strong stock performance in recent months, returns on equity continue to improve while valuations remain reasonable, according to the brokerage.
The industry trend bodes well for lenders, as is evident by loan growth across segments, it said.
The growth of PSU banks over the last 12 months has been faster in corporate loans at 20–30% versus 12–18% in non-corporate loans, the note said. Corporate loans continue to account for 40–50% of PSU bank loans.
Top Picks: Bank Of Baroda, State Bank Of India
Credit Suisse has recommended Bank of Baroda and State Bank of India as top bets, followed by IndusInd Bank Ltd. and ICICI Bank Ltd.
The brokerage kept an 'outperform' rating on both Bank of Baroda and State Bank of India, with target price of Rs 220 and Rs 730, respectively.
The brokerage expects strong profitability for Punjab National Bank and Union Bank of India, given the common equity tier-1 capital ratio of less than 11% and low RoEs, along with the resumption of dividend payouts.
It expects the Bank of India's RoEs to improve to about 10% given the strong CET of 13.5%. The stock was upgraded to "outperform" by the brokerage, with a target price of Rs 105.
The NSE Nifty PSU Bank Index, which includes Bank of India, Bank of Baroda, Central Bank, SBI, PNB and others, surged in trade on Thursday.
Bank of India Ltd. gained 7.92% at the close, Bank of Baroda Ltd. climbed 6.66%, and SBI rose 0.76%.
The NSE Nifty PSU Banks Index surged for the sixth consecutive session on Thursday in trade. The index closed 3.81% higher.