Shares of public sector undertaking (PSU) banks were trading firm, having gained up to 4 per cent on the BSE in Tuesday’s intra-day deals in an otherwise weak market on expectation of strong earnings momentum in coming quarters.
Nifty PSU Bank index hit a new high of 4,196 in intra-day trade, up 0.82 per cent at 4,185.90 at 09:30 AM. In comparison, the Nifty 50 index was down 0.50 per cent at 18,607.
Bank of India, Bank of Baroda, Bank of Maharashtra, UCO Bank, Punjab & Sind Bank, Indian Overseas Bank, Union Bank of India and Central Bank of India were up in the range of 1 per cent to 4 per cent on the National Stock Exchange (NSE). Of these, Bank of India, Bank of Baroda and Punjab & Sind Bank had hit their respective 52-week highs today.
In July-September quarter (Q2FY23), State Bank of India (SBI) reported a 39 bps QoQ decline in GNPA and 9 bps decline in restructured (R/s) book. Bank of Baroda continued to maintain its healthy run on the asset quality front as GNPA was down 95 bps while restructuring pool also declined 30 bps QoQ.
Analysts at ICICI Securities believe the asset quality trend should continue to improve as well while management commentaries have also indicated incremental stress will be lower.
Meanwhile, the stock price of SBI was up 0.32 per cent at Rs 619.30 in intra-day trade, gaining 2 per cent in past two trading days. It quoted close to its record high level of Rs 622.70, touched on November 7, 2022.
Last week, the state-run bank raised Rs 10,000 crore through its maiden issue of infrastructure bonds, at a coupon rate of 7.51 per cent. This is the largest single infrastructure bond issued by any bank in the country. The amount raised through bonds will be utilized in enhancing long term resources for funding infrastructure and affordable housing segment, SBI said in a press release. The bank has AAA credit rating from domestic credit rating agencies for these instruments.
The ratings continue to reflect the bank’s strong resource profile driven by the high share of current and savings account (CASA) deposits, resulting in an extremely competitive cost of funds and a granular deposit base. Given its strong resource profile, SBI’s liquidity profile remains superior, ICRA said in its rationale.
The ratings also considers SBI’s healthy capital profile and strong operating profitability, which could absorb any unforeseen asset quality pressures. The bank has supported its credit growth ambitions over the past few fiscals through its internal capital accretion, which has also witnessed an improvement.
ICRA believes SBI’s incremental capital requirements remain limited for the targeted growth, while maintaining a buffer of at least 100 basis points (bps) over the regulatory ratios. Moreover, if required, the bank’s ability to raise capital from the markets remains strong.
The Stable outlook on the ratings factors in ICRA’s expectations that SBI remains well-placed to absorb any unanticipated asset quality shocks through its operating profit, given the high provision coverage on legacy accounts. Further, ICRA continues to expect that SBI will benefit from its dominant position in the Indian banking industry, strong ability to raise capital, robust resource profile and sovereign ownership.
Given the bank’s modest exposure to stressed corporates, early delinquencies, and restructured (about 0.9 per cent of net advances at end-September 2022) and emergency credit line guarantee scheme-supported loan assets (disbursement was about 1.3 per cent under this schemes till FYE22), India Ratings and Research (Ind-Ra) estimates the gross slippages to be less than 2 per cent in FY23 and FY24 each. Its restructured assets at 1HFYE23 were lower than that of most banks. Given that the provision cover on non-performing assets (excluding technical write-offs) was over 75 per cent until 1HFYE23, legacy provisions will be easily manageable.
Ind-Ra expects the small and medium enterprises segment to continue contribute to slippages, especially from the restructured assets, the accounts supported by government guaranteed lines, and agriculture; however, Ind-Ra expects these to be easily absorbed by the bank.