Public sector unit (PSU) bank shares were in focus as the Nifty PSU Bank Index rebounded 11% in the past three sessions after sharp losses last week. The Nifty PSU Bank Index fell 15% in seven days amid a heavy sell-off. The Nifty 50 index fell 4.6% over the same period.

At 11.35 am, the Nifty PSU Bank Index, the biggest gainer among sector indexes, was up 2%, while the Nifty 50 was down 0.06%. Meanwhile, Nifty Bank and Nifty Private Bank index rose less than 1%.

Among them, shares of Punjab Sindh Bank (PSB), Central Bank of India, Bank of Baroda and Canara Bank rose between 3% and 5% on the National Stock Exchange (NSE).

Gross non-performing assets (GNPA) of the Indian banking system fell by 5.8% in March 2022 from its peak in March 2018, according to a report by the Reserve Bank of India (RBI). However, current macroeconomic conditions may affect asset quality.

“The asset quality of Indian banks continued to improve, with GDP as a percentage of total advances falling to 5% in September 2022 from 5.8% in March 2022. The decline was due to reduced slippage and outstanding loan GNPAs through recycling, upgrading and reduction in write-offs,” the report said.

On top of this, strong growth in banks’ balance sheets, especially public sector banks (PSBs), has ensured that the latter still holds the lion’s share of the deposits and advances market.

According to the report, PSBs accounted for 62% of term commercial bank deposits, while loans accounted for 58% market share. Meanwhile, bank credit growth reached a 10-year high by the end of September 2022.

Meanwhile, analysts at ICICI Securities observed a moderation in banks’ NPAs after peaking in FY18, mainly driven by a decline in corporate NPAs. Despite Covid-19, repayments in the retail sector remained stable, with a modest decline in restructuring pools. As a result, a reduction in non-performing assets has contributed to banks’ recent outperformance, analysts said.

“Historically, high capital adequacy ratios (CAR) and coverage ratios have resulted in less risk-averse lenders. The retail/MSME sector has been and will continue to be the main driver of credit offtake. We also expect corporate credit to recover gradually,” the brokerage added.