Shares of public sector enterprise (PSU) banks rose on Friday, with the Nifty PSU Bank Index hitting an all-time high of 3,310, surging 3% in intraday trade today, and is expected to grow 9% in fiscal 2022-23 (Q2FY23) month quarter.

The Nifty PSU Bank Index surpassed the previous high of 3,267.95 sets on September 15, 2022. The index is up 12% over the past week, while the Nifty50 is up 3%. Bank of India, Uco Bank, Punjab and Sindh Bank, Indian Bank, Canara Bank, Union Bank of India and Bank of Maharashtra rose more than 3% in intraday trading on the NSE today. State Bank of India (SBI), Bank of Baroda, Indian Overseas Bank and Punjab National Bank rose 2% to 3%.

On the earnings front, analysts expect PSU Bank to see a reversal in Treasury yields/treasury losses in the second quarter of fiscal 2023, with yields slowing. Therefore, other income should show meaningful growth sequentially. The brokerage expects the net interest margin (NIM) quarter-on-quarter (QoQ) to remain stable at around 3%. As gross non-performing assets (GNPA) decline, asset quality may, in turn, improve, keeping credit costs in check.

Analysts said better earnings are expected as NII, fee income improves and operating expenses are contained.
In its second-quarter earnings forecast, analysts at Prabhudas Lilladher said loan growth at PSU Bank is likely to align with the system, while year-on-year growth in net interest income (NII) could be higher at 15%.

Meanwhile, among individual stocks, the Bank of India hit a new 52-week high of Rs 235.90 on the NSE after rising 7%. The stock has risen 22% in the past week. Canara Bank also surged 5% to Rs 270.60 in intraday trade today, having surged 19% over the past week. The stock is trading near a 52-week high of Rs 272.80, hit on February 3, 2022.

In Q2FY23, Canara Bank posted healthy results, with net interest income (NII) rising 19% year-on-year, driven by an 8 bps margin expansion in Q2FY23. This, coupled with the attractiveness of healthy treasury receipts and fee income, drove overall earnings. New slippage stabilised at Rs 3,950 crore, while a healthy recovery and upgrade of Rs 3,400 crore and higher write-offs worth Rs 2,800 crore led to an improvement in asset quality ratios during the quarter.
In its performance update, Motilal Oswal Financial Services said Canara Bank reported healthy operating results, supported by continued traction in loan growth and improved asset quality, while margin expansion drove NII.

Given the environment of rising interest rates, the bank expects profit margins to remain healthy. The corporate sector led lending growth, and the outlook is encouraging as Canara Bank looks for solid double-digit growth in FY23. Slippage was flat month-on-month, so the asset quality ratio improved further against the backdrop of higher recovery and upgrades. The brokerage said declines in SMA overdue and restructured portfolios provided more comfort to asset quality trends. It maintained a “buy” rating on the stock with a target price of Rs 340 per share.

SBI shares rose nearly 2% to Rs 565.55, close to their all-time high of Rs 578.65 set on September 15. The stock has risen 7% in the past week. Rating agency Fitch expects SBI’s retail business to remain a key growth driver, with the bank showing cautious optimism in the corporate and SME sector as interest rates rise. The bank is more concerned with credit quality, as its modest capitalisation forces it to optimise capital utilisation.