Analyst Forecasts Re-rating For PSU Banks: SBI, Canara, Union
According to brokerage firm Motilal Oswal, India's state-run banks, including State Bank of India, Canara Bank, Union Bank of India, Bank of Baroda and others, are poised for a potential re-rating. In their note titled "Well Poised for Re-rating 2.0," Motilal Oswal highlighted that achieving a 1 per cent Return on Assets (RoA), once considered aspirational, is now seen as a sustainable target for these banks. The brokerage also emphasised that despite a rally in 2023, the valuations of most of these PSU banks remain appealing.
The PSU Bank index has notably tripled in value since 2021, with a market capitalisation surpassing Rs 13 lakh crore last Friday. After three years of negative returns from 2018 to 2020, the index saw a significant increase of 45 per cent, 71 per cent and 33 per cent in the last three years respectively.
Motilal Oswal projects a substantial growth in the earnings pool of PSU banks, estimating a rise to 1.7 lakh crore by financial year 2026 from 57,300 crore in financial year 2022. The brokerage highlighted the comfortable levels of Liquidity Coverage Ratio and the strong liability franchise these banks carry.
The impact of wage provisions, except for State Bank of India, is expected to be limited on these lenders, leading to moderated operating expenses. Additionally, the brokerage noted steady improvements in asset quality and a decrease in the Special Mention Accounts (SMA) pool, which bodes well for these banks.
Motilal Oswal revised price targets upward for several lenders including SBI, Bank of Baroda, Indian Bank, Union Bank, Canara Bank and PNB based on these positive trends. Their top picks among state-run lenders include SBI, Bank of Baroda and Canara Bank.
The Nifty PSU Bank index has recorded a 33 per cent increase in 2023 so far, with notable performers being PNB (up 62 per cent), Central Bank of India (up 57 per cent) and Bank of Maharashtra (up 55 per cent).
