Nifty PSU Bank sheds nearly 3% ahead of Q1 earnings; Bank of Maharashtra, PSB, PNB top bears

Nifty 50 traded on a flat note on Thursday as sharp selling in Nifty PSU Banks dragged the performance. All public sector banking stocks traded in the red. The cautious tone comes ahead of Q1 earnings for FY24 with the Central Bank of India, and Bank of Maharashtra lined up for next week. Some brokerages mention that commentary around Ind-AS implementation will be key monitorable for PSU banks in Q1.

At the time of writing, the Nifty PSU Bank index traded at 4,341.40, shedding 120.60 points or 2.70%. The index has plunged to touch an intraday low of 4,331.60.

Bank of Maharashtra is the top loser today as the stock nosedived by 5.31% followed by Punjab & Sind Bank dipped by 5.01%. Furthermore, Punjab National Bank (PNB) dropped by 3.9%, Central Bank of India shares contracted by 3.85%, and Bank of Baroda fell by 3.81%. Also, UCO Bank and Canara Bank shares tumbled by 3.47% and 3.12% respectively,

Further, Indian Overseas Bank shares dropped by 2.8%, Bank of India slipped by 2.77%, Union Bank of India plummeted by 2.37% and Indian Bank shed over 1.5%. The largest PSU lender, State Bank of India (SBI) shares dipped nearly a percent.

Next week, the Central Bank of India will kick start Q1 earnings for PSU banks by announcing its financial results on July 17, followed by Bank of Maharashtra on July 19, and Union Bank of India on July 20.

In the Q1 preview research note, ICICI Securities research analysts said, "While SBI and large private banks have healthy o/s contingent buffer, commentary around Ind-AS implementation (and thus need for creating prudential buffer) would be the key monitorable for small-mid private and other PSU banks."

The brokerage highlighted that PSBs have been aggressive in overseas and retail growth, but seem to be losing out on SMEs. Data of 7 large PSU banks by ICICI Securities showed that they recorded lending growth of 10.7% in SME credit by the end of Q4FY23, while retail lending growth stood at 19.5% and corporate & other credit growth stood at 11.2% for these state-owned banks.

Nevertheless, Motilal Oswal expects PSU banks to report earnings of 96% YoY in Q1FY24, which is likely to be better than the growth of 32% estimated for private banks.

Motilal's note said, "Earnings growth is likely to remain robust, aided by controlled credit costs, though margins can show a downside bias on rising funding costs. PSBs are likely to deliver NII/PPoP growth of 27%/40% YoY and PAT growth of ~96% YoY (-12.8% QoQ) in 1QFY24E."

Further, Motilal expects PSBs' operating expenses are likely to remain elevated as banks provide for wage revisions. Treasury performance should remain healthy due to a moderation in bond yields and a recovery in capital markets. In the case of lending, the loan growth may remain modest after strong growth in FY23.

Most PSBs are already guiding for moderation in loan growth in FY24. Motilal sees improvement in asset quality to continue, while healthy PCR and a sharp decline in SMA/stressed asset pool will keep credit costs in check.

Motilal has given on Buy rating on SBI, Bank of Baroda, Central Bank of India, Union Bank of India, and Indian Bank. While it stayed 'Neutral' on Punjab National Bank.

Earlier, in a research note dated July 10, Khandwala Securities said, "Technically NIFTY PSU Bank has recently broken out of a seven-year resistance line, indicating a significant shift in buying momentum. This breakout suggests that there is increased interest in buying PSU bank stocks within the NIFTY index. The resistance line, which had been holding back the prices for a prolonged period, has been surpassed, potentially signaling a bullish trend for PSU bank stocks in the NIFTY index."