Why PSU banks are on a roll, explained in charts

livemint.com:

₹1.4 trillion in 2023-24, up 35% from the previous fiscal, and up four times compared to 2020-21, reflecting a turnaround in this segment. In 2020-21, for instance, Central Bank of India, and Punjab and Sind Bank reported losses. In 2023-24, they reported a net profit of ₹2,549 crore and ₹595 crore, respectively.

Second- and third-tier PSU banks are increasingly contributing to the sector’s profits. The share of State Bank of India (SBI), the leading PSU bank, in the total net profit of PSU banks has dropped from 64% in 2020-21 to 43% in 2023-24, indicating a broader turnaround. Consequently, the Nifty PSU Bank Index has surged over 83% in the past year, compared to a 9% rise in the Nifty Private Bank Index and a 22% increase in the BSE Sensex.

One reason why the market has rewarded PSU banks is their successful tackling of asset quality issues. With support from initiatives like the National Asset Reconstruction Co. Ltd (NARCL), a bad loans bank, and the insolvency and bankruptcy law, they were able to move bad loans off their books and improve recovery rates.

For example, in the first 11 months of 2023, 10 PSU banks transferred ₹11,617 crore of bad loans to NARCL, according to the finance ministry. PSU banks reduced their net NPAs by over ₹50,000 crore in 2022-23 compared to 2021-22, the Reserve Bank of India had said in a report in December 2023. This trend has continued, with net bad loans at SBI dropping to 0.57% of advances in March 2024, down from 0.67% in March 2023 and 2.23% in March 2020.