FY24 has been a bumper year for public sector bank (PSB) shares, with the Nifty PSU Bank Index soaring 88.56 per cent in FY24 versus 14.25 per cent increase in the Nifty Private Bank Index.
The aforementioned indices reflect the performance of public sector banks (PSBs) and private sector banks (PVBs). They provide investors and market intermediaries with a benchmark that captures the capital market performance of these banks.
The Nifty PSU (public sector undertaking) Bank Index and Nifty Private Bank Index comprise shares of all 12 PSBs and 10 PVBs, respectively.
The Nifty PSU Bank Index rose 3,291.10 points in the last financial year to 7,007.25 as on March 28, 2024 (the last day of trading in FY24). The Nifty Private Bank Index was up 2,937.75 points in the last financial year to 23,555.85 as on March 28, 2024.
The robust one-year Index (price) return (in FY24) in the case of the Nifty PSU Bank Index has had a salubrious impact on five-year returns too, which stood at 15.98 per cent against 6.35 per cent for Nifty Private Bank Index, per NSE data.
“Public sector banks’ stable asset quality, improvement in profitability due to lower provisions, leading to improved return ratios, are some of the reasons for the Nifty PSU Bank Index to give 88.56 per cent returns. Most of the Banks have returned to divided list,” said Mangesh Kulkarni, Assistant Vice-President, Almondz Financial Services.
Asset quality outlook
In its recent outlook on banking sector, ICRA noted that annualised net slippages (net of recoveries and upgrades) remained low but expected to rise sequentially for banks.
Fresh NPA (non-performing asset) generation rate in FY25 for PSBs and PVBs have been placed at 1.5 per cent (vs estimated 1.3 per cent in FY24) and 2.2 per cent (2 per cent), respectively, per the rating agency’s assessment.
ICRA projected PSBs and PVBs net NPAs in FY25 at 0.5-0.7 per cent (0.9 per cent in March 2024) and 0.5-0.6 per cent (0.5 per cent).
Return on Equity of PSBs and PVBs have been estimated at 11.3-12.8 per cent (against estimated 14.5 per cent in FY24) and 11.6-12.8 per cent (14.7 per cent).
The agency estimated the banking sector’s credit growth to moderate to 11.6-12.5 per cent in FY2025 from 16.3 per cent in FY2024 in the backdrop of challenges in mobilising deposits, high interest rates and the increase in risk weights.