SBI shares a 'good structural bet', other 2 PSU bank stocks near-term bets: Brokerages

 

• State Bank of India (SBI), Bank of Baroda (BoB) and Bank of India (BOI) are better placed than PSBs, said brokerage Ambit

PSU banks highlight improving loan growth, expanding net interest margin (NIM) and improving asset quality, domestic brokerage and research firm Ambit outperform Bank Nifty by 46%/107% in last 1/2 years did.

“Moreover, most PSBs are losing market share in loans/deposits/payments and their asset quality performance during Covid does not indicate structural improvement in underwriting capabilities. That said, higher liquidity buffers and floating rate loan book should benefit PSBs in the near term in maintaining loan growth/NIM. Also, a benign asset quality cycle should keep credit costs low. Combined with short-term earning drivers and structural strength of the franchise, State Bank of India (SBI), Bank of Baroda (BOB) and Bank of India (BOI) are better positioned PSBs," the note said.

Ambit said SBI is a good structural play, while BoB and BOI are near term plays. “SBI has scored well on all parameters with improvement in market share in loans/liabilities/payments, high provisioning coverage of 66% on stressed loans and proper liquidity buffers stable on the balance sheet. SBI is one of our favorite picks in this area."

While BoB lost some market share in loans and saw a high deterioration in asset quality during Covid, it scores well on balance sheet liquidity, liabilities quality, fee income/payment capabilities and 61% coverage on stressed loans. While BOI scores poorly on digital payments/capabilities, it scores well on asset quality, balance sheet liquidity, liability/asset franchisee strength, the brokerage said.

“Higher fee income has been a key driver of higher profitability for private sector banks. Fee income is also a measure of the ability to sell products and engage with customers. SBI/BOI scores well on this front."

After going through a purple patch between FY 2003-14, PSU banks went through a tough phase between FY 2016-19 owing to significant asset quality deterioration in corporate loans.

“However, the profitability of PSU banks started improving with an average ROA/ROE of 0.6%/10.1% in FY11 to 1HFY23. PSU Bank Index has outperformed Bank Nifty since December 2020 as a result of improving profitability. The outperformance has increased significantly in the last few months," the brokerage highlighted.