Stellar FY24 for public sector banks, with Nifty’s PSU Bank Index returns soaring 88%
FY24 was a bumper year for public sector bank (PSB) shares, with the Nifty PSU Bank Index soaring 88.56 per cent versus 14.25 per cent increase in the Nifty Private Bank Index.
The Nifty PSU (public sector undertaking) Bank Index and the 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 at 23,555.85 in the same period.
The robust one-year Index (price) return (in FY24) in the Nifty PSU Bank Index had had a salubrious impact on the five-year returns too, which stood at 15.98 per cent against 6.35 per cent for the 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 banks have returned to the dividend list,” said Mangesh Kulkarni, Assistant VicePresident, Almondz Financial Services.
ASSET QUALITY
In a recent outlook on the 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 has 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 0.50.7 per cent (0.9 per cent in March 2024) and 0.5-0.6 per cent (0.5 per cent).
The Return on Equity of PSBs and PVBs has 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 sees the banking sector’s credit growth moderating to 11.6-12.5 per cent in FY25 from 16.3 per cent in FY24 in the backdrop of challenges of high interest rates and the increase in risk weights.