Most PSU Banks have emerged as major wealth destroyers in the last 5 years. They have been under pressure, despite the third round of recapitalisation, on asset quality issues, increase in bad loans, and low visibility of profit in the near future.
J&K Bank, Syndicate Bank, Central Bank of India, Bank of India, Oriental Bank of Commerce, Allahabad Bank, Union Bank of India, and Punjab National Bank have destroyed over 50 percent investor wealth in the last 5 years.
However, State Bank of India (SBI) and Indian Bank have been exceptions, gaining over 40 percent each, in the last 5 years.
SBI, which was trading around Rs 250 five years ago, is now at Rs 363 per share, up 45 percent. The bank hit its all-time high level of Rs 373.70 yesterday and a 52-week low of Rs 247.65 on October 26, 2018.
For Q4, the bank posted a profit of Rs 838.40 crore against Rs 7,718 (YoY) after a rise in provisions to trim bad loans. Gross NPAs declined to 7.53 percent against 10.91 percent in the corresponding quarter last year.
Nomura retained the lender as its top pick in the banking sector as it sees a high probability of profitability improving going ahead. The brokerage recently raised its target price from Rs 400 to Rs 470.
HDFC Securities said, "Within the PSU banking space, SBI remains the best play to benefit from the recovery in the credit cycle. Healthy recoveries/writebacks from the NCLT accounts and decline in incremental slippages would drive further improvement in asset quality. RWA (Risk-Weighted Assets) is coming down due to the high focus on quality corporates."
"Pick-up in loan growth and resilient margins are likely to keep revenue growth buoyant. GoI support for infusing capital provides comfort. Subsidiaries growth and presence in key areas provides value unlocking possibilities. Post the expected consolidation and shakeout in the space, SBI could emerge even stronger," it added.
Meanwhile, Indian Bank rose 42 percent in the last 5 years, up from around Rs 159 in 2014 to Rs 226 per share in 2019. For Q4, Indian Bank posted a net loss of Rs 190 crore against a net profit of Rs 132 crore in the same period last year. Operating profit of the bank improved marginally to Rs 1,245 crore from Rs 1,164 crore YoY.
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