Analysts allay fears of exuberance in public sector banks
MUMBAI : PSU banks have rallied sharply in the past month, culminating in volumes on the Nifty PSU Bank Index, comprising 12 lenders, hitting a record high of 1.78 billion shares on 18 September. Normally this is a sign of worry, as the index has plunged 20-25% in the near term on previous occasions after volumes peaked. But, analysts remain unfazed despite stocks like Indian Overseas Bank (IOB), UCO Bank, Punjab & Sind Bank, Central Bank of India and Bank of Maharashtra rising 25-50% in last month alone and their valuations looking stretched compared to State Bank of India (SBI), the country’s largest bank by assets.
The drawdown (fall from peak to trough) in the index was 20% in the two following months from 18 February 2021 after volumes peaked on that day at 1.35 billion shares. Similarly, the index plumbed 21% when volumes peaked at 1.4 billion shares on 14 December. “If anecdotal evidence is anything to go by, this is a worrying sign," said Rohit Srivastava, founder, IndiaCharts.
Indeed , after the one month rally through 18 September some of the smaller banks in the 12-member index have valuations topping those of larger peers SBI, Bank of Baroda (BoB) and Punjab National Bank (PNB). The tearing rally is underscored by the fact the index rise over the past month alone contributed 66% to last one last gain of 19.95%. Further, price to book ratio of IOB, which rose by 47% over the past 30 days to ₹46.40, is at 3.48 against SBI’s 1.65, Bank of Baroda’s 1.14 and PNB’s 0.85.
This is all the more glaring considering that IOB’s gross non performing assets (GNPA) in June 2023 quarter, altho-ugh down from a year ago, is at 7.13% of its advances. GNPA of UCO Bank, whose shares rose 49% in last 30 days, is at 4.48%. Also,
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