Public Sector Banks - The Homecoming Of RoA: Motilal Oswal

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy. .Motilal Oswal Report.Public sector banks have come a long way over the past five years with profitability of top seven PSB’s under our coverage improving to an estimated Rs 909 billion in FY23 from a loss of Rs 594 billion in FY18. We estimate earnings traction to sustain aided by improved loan growth, margins and controlled credit costs.While the return on asset mark of ~1% for a PSB appeared more like an aspiration until two years ago, we note that collectively the top seven PSBs under our coverage have delivered an average RoA of ~1.1% over 10 years during FY04-13. Even the peak RoA witnessed over this decade across these PSBs stood healthy at 1.1%-1.7%. We note that for five years during FY16-20, Axis Bank Ltd. and ICICI Bank Ltd.’s average RoA stood at 0.6% and 0.9%, respectively. Earnings quality for these PSBs have also improved sharply as our current RoA projections pencil in much lower contribution from treasury gains (average 12 bps to RoA) versus 47 bps average seen over FY04-13. Moreover, we are also building in a slightly higher credit cost than that prevailed during those ten years, which underscores the ability of PSBs to sustain this earnings trajectory..Click on the attachment to read the full report:.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

Public Sector Banks - The Homecoming Of RoA: Motilal Oswal

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