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Steady fall in bad loans help PSU banks roar in 2022

finance | Dec 10, 2022 7:58 PM IST

Steady fall in bad loans help PSU banks roar in 2022

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The Nifty PSU bank index is the best-performing index this year, 2022. Most PSU bank stocks have rallied over 100 percent as they have managed to clean up their balance sheets.

There has been a breathtaking rally in public sector undertaking (PSU) bank stocks. The primary reason behind the upswing has been a steady fall in gross non-performing assets (NPAs) or the 'bad loans' on all their balance sheets. The net NPAs are even lower than they were in 2016, i.e. before the asset quality review (AQR) started in 2017 by the Reserve Bank of India (RBI).

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The Nifty PSU Bank Index is the best-performing index this year as most stocks in it have rallied over 100 percent.
Moreover, PSU banks have steadily increased their profits and their loan books too. The latest reading is almost 17 percent in the last available quarter.
Recently, the market valuation too crossed Rs 10 lakh crore for the first time ever, although more than half of it comes from the leader of the pack and India's largest lender, State Bank of India.
In a note put out in early December, Morgan Stanley raised earnings estimates, valuation multiples and price targets for most PSU Banks and highlighted Bank of Baroda and Bank of India as the names with the best relative risk-reward.
“We compare these banks on capital, asset quality, profitability and liquidity. Bank of India and Bank of Baroda offer the best risk-reward, followed by SBI (State Bank of India),” their note said.
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