Nifty PSU Bank index soars 5%; SBI hits record high, up 3%; BOB zooms 10%

Shares of public sector banks (PSBs) have rallied up to 10 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade after select banks reported a solid set of numbers for the quarter ended December 2021 (Q3FY22).

At 11:22 am; State Bank of India (SBI), (BOB), Union Bank of India, Bank of India, and Punjab National Bank (PNB) traded over 2 per cent higher on the NSE in an otherwise weak market.

The Nifty PSU Bank index hit an over two-year high at 3,133.50, and was up 5 per cent in intra-day trades today. The index surpassed its previous high of 3,100.15 hit on July 19, 2019. Currently, the Nifty PSU Bank index was up 3.4 per cent, as compared to 1.1 per cent decline in the Nifty 50 index.

Among the individual stocks, SBI hit a record high at Rs 549, and had gained 3.5 per cent in intra-day trade, after the country’s largest lender reported a 62.3 per cent year-on-year (YoY) rise in net profit at Rs 8,432 crore in Q3FY22 on growth in interest margins. This is the highest quarterly net profit reported by the bank.

Net interest Income (NII), the difference between interest earned and interest expanded, of the lender rose by 6.48 per cent YoY in Q3FY22 to Rs 30,687 crore from Rs 28,820 crore the same period last year on back of improvement in credit offtake. Domestic net interest margin, a measure of profitability, stood at 3.40 per cent in Q3FY22, up six basis points YoY. However, sequentially NIM declined by 10 basis points from 3.50 per cent in Q2FY22.

Asset quality improved in the third quarter with gross non-performing assets (NPAs) declining at 4.5 per cent in December 2021 from 4.77 per cent a year ago and 4.9 per cent in the September quarter. Net NPAs were higher at 1.34 per cent in December 2021 as against 1.23 per cent in December 2020. However, they were down from 1.52 per cent in September 2021.

Analysts at ICICI Securities believe overall strength in liability franchisee, >9 per cent guidance on growth and improving return ratios with RoE touching 12-13 per cent should be positives for SBI. The maintain ‘buy’ rating on the stock with revised target price of Rs 630 per share.

Also read: Analysts see up to 45% upside in SBI, BoB; credit growth to be key driver

The strong performance on asset quality front is a positive. The healthy pipeline will aid business growth and overall performance. Healthy provisions worth around 1.1 per cent provide comfort on earnings shock. The improving RoE trajectory to aid improvement in valuations are among key triggers for future price performance, the brokerage firm said.

Shares of BOB surged 10 per cent to Rs 117.20 in intra-day trade as its net profit doubled to Rs 2,197 crore in Q3FY22, aided by higher net interest income and lower provisions. The lender had posted a net profit of Rs 1,061 crore in the same quarter a year ago.

NII of the lender jumped 14.38 per cent to Rs 8,552 crore in the reporting quarter, aided by margins. Net interest margin, a measure of profitability, of the bank stood at 3.13 per cent, up 36 basis points from the year-ago period.

Asset quality of the bank improved both sequentially and on a YoY basis, with gross NPAs at 7.25 per cent. Similarly, net NPAs improved to 2.25 per cent in Q3FY22. Slippages of the bank came in at Rs 2,830 crore as compared to Rs 5,223 crore during Q2FY22 and Rs 3,986 crore in Q3FY21. The bank has been guiding that the slippages should be in the range of 2 per cent.

Motilal Oswal Financial Services maintain ‘buy’ rating on BOB with a target price of Rs 150 per share. “BOB reported a commendable earnings performance led by a strong recovery in NII and lower provisions even as lower treasury gains impacted other income. Domestic NIMs expanded 31bp QoQ to 3.2 per cent led by improvement in yields while cost of deposits continues to moderate,” the brokerage firm said in result update.

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