PSU banks' profit jumps over 4 times in 3 years to Rs 1.4 lakh crore in FY24 (2024)

Showcasing a sharp earnings turnaround on asset quality improvements, robust margins and strong loan book growth in a multi-year credit upcycle, the combined net profit of all 12 PSU banks has zoomed nearly 4.5 times in just 3 years to record high levels of Rs 141,203 crore in FY24.

On a year-on-year basis, the profit pool of PSU banks has surged 35% from Rs 104,649 crore in FY23. India's largest lender the State Bank of India (SBI) alone contributed over 40% of the total earnings with an annual profit of Rs 61,077 crore.

SBI's quarterly profit of Rs 20,698 crore was also the highest reported by any company in this quarter, higher than both RIL's Rs 18,951 crore profit and HDFC Bank's Rs 16,512 crore.

Other top contributors were Bank of Baroda (Rs 17,788 crore), Canara Bank (Rs 14,554 crore) and Union Bank of India (Rs 13,649 crore).

UCO Bank and Punjab and Sind Bank were the only two PSU banks to have reported a decline in profit as compared to the previous financial year.

Over the years, the balance sheets of PSU banks have seen a dramatic turnaround from posting a total net loss of Rs 85,390 crore in 2017-18 to being Dalal Street's favourite in this bull market.

The financials of 'sarkari' banks are now largely in line or converging towards their private banking peers. As a result, the Nifty PSU Bank index has rallied over 76% in the last one year as against a modest 8% rise seen in Nifty Private Bank index. Relatively cheaper valuations and a low free float also did the trick as far as stock price performance is concerned.

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Why the tide has turned for PSU banks

The rags-to-riches story of PSU banks is seen as a result of multiple triggers starting from banking reforms such as the establishment of Bad Banks to move long outstanding NPAs out of their books, implementation of Insolvency & Bankruptcy Code which helped lenders recover debts and, merger of several PSU banks.

Not only have PSU banks grown their loan books, but they have also improved margins in the past few quarters. "These expanded margins are the result of a gradual rise in deposit rates, alongside a rapid change in lending rates. This widening spread propelled yields and margins. Improving margins have allowed banks to write off the provisions made for loans off the balance sheet, leading to strengthening financials and improved prospects for growth," analysts at Ambit Capital say.

PSU banks have also built retail capabilities and have caught up with private banks on CASA ratios.

Analysts expect PSUs to take the lead in infrastructure financing and corporate project loans. PSU banks have also typically enjoyed lower loan-deposit ratios, allowing them to push loan growth.

"I am betting mainly on PSU banks. I believe even though there is a lot of buzz that PSU banks have been done with their rally, I believe banks like SBI, PNB will continue their rally going forward. I am expecting their numbers to improve. I am generally bullish on the PSU sector and specifically want to focus on banks. PNB and SBI are my picks," says Abhijit Chokshi of Stockifi.

In the last one year, at least four PSU banks - PNB, IOB, Central Bank and Bank of Maharashtra - have more than doubled investor wealth.

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