PSBs recover from intraday lows; Bank of India, Andhra Bank up 2%

Govt will nudge 6 PSBs to raise funds in line with Indradhanush plan

Shares of public sector banks (PSBs) have erase their intra-day losses and recovered by up to 5% in late morning deals on the National Stock Exchange (NSE).

Bank of India, Indian Overseas Bank, Central Bank of India, Bank of Baroda, Oriental Bank of Commerce and Punjab National Bank have recovered in the range of 2% to 5% from their respective intraday lows.

At 11:07 AM; Nifty PSU Bank index was up 1.1% at 3,062, bouncing back 1.6% from its intra-day low of 3,015 on the NSE. The benchmark Nifty50 index trading 0.7% higher at 10,164, was close to its record high of 1,0179, touched on September 19, 2017 in intra-day trade.

The Nifty PSU Bank index on Thursday hit an intra-day low of 2,995, its lowest level since January 10, 2017. The index ended at 3,028, slipping 19% from its recent closing high of 3,723 on July 31, 2017.

By comparison, the benchmark Nifty 50 was down marginally by 0.58%, while Nifty Bank (down 4%) and Nifty Private Bank index (down 2%) were down less than 5% during the period.

According to rating agency CRISIL, the operating profitability (pre-provisioning profitability, or PPoP) of banks should stabilise by the end of this fiscal, mainly driven by improvement in the net interest income. This will be supported by lower interest reversals on non-performing assets (NPAs), pick-up in credit growth, and reduction in funding costs.

“Pressure on the earnings profiles of banks would reduce from next fiscal if banks increase provisioning on large corporate NPAs this fiscal,” said Krishnan Sitaraman, Senior Director, Ratings, CRISIL. “Stabilisation in operating profitability and mitigation of asset quality stress would then set the stage for earnings revival, especially of PSBs, as they focus more on credit growth.”

However, with the economic value of assets underlying NPAs eroding with time – resolutions are hard to come by – banks would do well to bite the bullet and step up on provisioning, mainly for large corporate NPAs, and thus facilitate faster clean-up of their balance sheets, the rating agency said in a note.

CRISIL estimates this could lead to a net loss of around Rs 60,000 crore for the banking sector this fiscal with public sector banks (PSBs) bearing the brunt of increase in provisions and the resultant impact on profitability because of their higher stock of NPAs.

“The ability of PSBs to step up on provisioning and hasten clean-up of balance sheets would depend on their capital strength to absorb P&L losses,” said Vydianathan Ramaswamy, Associate Director – Ratings, CRISIL. “While larger PSBs are better placed on this count, most of the medium and small ones will require relatively higher capital support from the government to offset such losses and also meet the capital requirements under Basel III regulations.”

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