On Friday, Punjab National Bank (PNB) marked a significant achievement as the third public sector bank to hit the Rs 1 lakh crore milestone, even though its stock price hasn't reached its peak. This success is credited to substantial equity injections received by banks, including PNB, in recent times.
The government infused capital into several PSU banks to aid credit expansion and help them overcome losses caused by non-performing assets (NPAs). This bolstered their equity base, leading to increased market valuation. For example, PNB's total outstanding shares have surged over six times since FY13 to reach 1101 crore presently.
While the State Bank of India (SBI) leads with a market valuation of Rs 5.8 lakh crore, Bank of Baroda holds the second position at Rs 1.2 lakh crore.
PNB shares surged by 2 per cent on Friday, closing at Rs 91.25 on NSE. However, they are trading approximately 67 per cent lower than their peak of Rs 279.98 in November 2010.
PSU bank shares, previously underperformers, have made a turnaround. The Nifty PSU Bank index has risen by 33 per cent in 2023 after a combined gain of 146 per cent in 2021 and 2022.
Most state-owned banks have witnessed improved operating profits over the last two years. Karthik Srinivasan, Senior Vice President of ICRA, noted, "The banking system has experienced significant growth over the last two years."
Yet, PNB's recent stock rally has driven its valuation to higher levels. Bloomberg data indicates PNB shares are trading at 0.94 times its one-year forward book, a 76 per cent premium compared to its five-year average.
Many in the financial market have turned cautious post the sudden surge in PSU banks, especially the smaller ones. They believe that the price-to-book value (P/BV) ratio doesn't justify investing in smaller PSU banks.