Through the last three strange weeks, the banking sector of the eternal PSU-most of them remain isolated from the whole volatility of the market and remain in positive areas, thanks to increasing investor sentiment.

Nifty PSU Bank Index rose 15 percent since June 20, led by heavy purchases in prominent names such as Bank of Baroda and Canara Bank. Stocks rose 20 and 24 percent in that period, while several other shares from this sector also performed relatively better. A good private bank index – which makes Gung Ho analyst – has only obtained 8 percent compared.

Changes that change

In the last decade, public sector banks (PSB) are often ignored, and indeed, given its inefficiency in the face of increasing competition. This reflects their share price with a good PSU bank index down 35 percent since 2011. A good private bank index has jumped more than three times in this period.

The 2008 market accident triggered by the global financial crisis and the following years made the lenders managed by the government wrestling with a series of problems. Their market share was struck by more aggressive private banks, non-performing assets that were stacked after the real estate sector was destroyed, finance received a big blow with large provisions and removal, and repeated fraud made them panting under the burden of debt bad.

But this seems to be a settlement time for banks that are surrounded by the government.

Most of the book cleaning is done now. Coverage of high provisions, which for several banks as high as 85 percent, give them sufficient security to become aggressive. Provision (PCR) coverage ratio for HDFC Bank and ICICI Bank was in the 70s.

“Apne Padosi Ticket Ka Bhi Kar Rakha Hai (they also made provisions for their neighbors),” joked the founder of MK Ventures Madhusudan Kela on TV program last week.

Also, working for them is a high level of recovery in recent years, thanks to the resolution under the bankruptcy and bankruptcy code, especially for loans that have been abolished because they directly increase profitability.

Mohit Nigam, Head of PMS in Hem Securities, agreed that the high PCR gave PSU Bank a sense of security. “Because the Balance Sheet of the Public Sector Bank is now strong enough for them to focus on expansion, FY22 is an important period for them,” he said, pointing to their accelerated loan and deposit growth.

Many PSB have defeated their own projections about credit growth. This approach has become conservative in their guidance to take into account any supervision, and grows aggressively. In FY22, the Bank Canara targets a loan growth of 7.5 percent and closes the year with 9.77 percent. For FY23, lenders have provided a minimum growth of 8 percent. “We hope to grow 10 percent this year,” said LV Executive Chief Prabhakar in May.

However, credit growth is not in accordance with the rate of private lenders such as HDFC Bank which grew by around 20 percent of the years. “What will encourage further repair in this bank -bank (Bank PSU) is their ability to grow,” said Nishit Master, Portfolio Manager, Axis Securities.

What also works for them, according to Nigam, is a better reach, cheaper funding costs, and a strong capital base. He also showed that the government had urged bankers to become more competitive and reclaim the market share.

Not every bank among PSBs has shown the improvement like that of Canara Bank or Bank of Baroda. Some are still struggling to shake off the iron chains. Punjab National Bank, Bank of India and Central Bank of India are among those that have not shown the tenacity displayed by their peers, said analysts.

Thus, analysts have been selective in their approach, so have been investors who have largely avoided these names. “We prefer playing PSU banks through quality names like SBI and Bank of Baroda. In terms of management quality and technology, these banks are better placed than other PSU banks,” said Master.

In the near term, there are some nagging issues, but that is something which affects everyone and not just PSBs. “With an increase in interest rates, these banks will be hit by market-to-market (MTM) loss on their treasury book. But, we believe that markets will consider them as one-offs,” he said.