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Things At PSU Banks Are So Bad They Can Only Get Better

Published 07-07-2020, 12:27 pm
Updated 09-07-2023, 04:01 pm

The reason investors are attracted to Public Sector banks is - cheap valuations. These banks have a strong history of distributing heavy dividends that attract masses, not recently, however; the March quarter was good for some public sector banks (PSBs), as many turned profitable after posting losses for several quarters in a row.

Non-performing assets (NPAs), too, declined for most of them. Even so, the twelve public-sector banks (PSBs) recorded gross NPAs worth Rs 5.47 lakh crore, more than twice the size of the bad-loan pile of 19 private banks, which stood at Rs 2.04 lakh crore.

The actual value of bad assets in PSBs is likely to be much higher as Q4 results for six PSBs, which were merged with other banks during the quarter, have not been made public. Almost all PSBs saw a decline in absolute GNPA numbers, with the exception of the Indian Bank and Canara Bank (NS:CNBK). The sharpest slide in NPA numbers was seen in the case of Bank of Maharashtra (BoM), Indian Overseas Bank (NS:IOBK) (IOB) and UCO Bank (NS:UCBK), where NPAs fell 23%, 16%, and 13% respectively. State Bank of India’s (SBI (NS:SBI)) gross NPAs fell 6.6% and Bank of Baroda’s (BoB) fell 5%. At the same time, BoB’s bad-loan portfolio shot up 44% on a year-on-year basis, reflecting the bank’s merger with Dena Bank (NS:DENA) and Vijaya Bank (NS:VJBK), and possibly foreshadowing asset quality problems in the other four banks which have been amalgamated with six others, effective April 1, 2020.

Today, most PSU banks are carbon copies of each other.

A PSU bank board looks at irrelevant stuff, like the location of branches and ATMs. Bank boards should have new-age expertise on cyber-security and digital banking. They can’t be sitting and discussing agriculture and labor issues. If the board discussions are so badly done, the governance of the bank is going nowhere.

When we think of PSU Banks; we think “Bad Loans” and “NPAs” – These thoughts are not going to change in the near future, however, in the long term, we can witness significant improvement happening in these banks that might attract investors.

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