Nifty PSU Bank rises 88% in the last one year: Top PSU bank stocks to watch out for

The Nifty PSU Bank index scaled lifetime high levels in the last one year and emerged as one of the top-performing indices so far in 2024, led by a strong rally in public sector banks.

The 12-share PSU Bank index has rallied over 88% in the last one year while year-to-date returns stand at 25%. The index has beaten its private counterpart, Nifty Private Bank, which posted nearly 12% gain in the last one year.

Market analysts believe an improvement in asset quality, return on equity (RoE) and lower valuations compared to private peers have aided the rally in PSU banks in the past year, taking the sectoral index to record highs.

Top PSU Bank stocks to keep a watch in 2024

Indian Overseas Bank

Driven by a sharp improvement in asset quality over the last two quarters, Indian Overseas Bank leads the pack with overall gains of 165% in the past 12 months. The bank reported a 181-basis points cut in net non-performing assets to 0.62% in the December quarter of FY24 as against 2.43% in the year-ago period. Double-digit growth in advances and around 27% growth in net profit for the first nine months of FY24 have boosted the share price.

The stock has jumped more than 177% to ₹69.8 level on NSE as of February 20, 2024. The stock was trading at ₹25 level a year ago. The stock hit a 52-week high of ₹83.75 apiece during the period and a low of ₹20.85.

Punjab National Bank

India’s second-largest PSU lender Punjab National Bank has been the third largest value creator among PSU banks in the past year. PNB shares have risen by nearly 155% from ₹50.8 per share to ₹129.5 per piece during the February 16, 2023, to February 20, 2024 period.

PNB brought down its net NPAs by a strong 232 basis points to 0.96% in the December quarter while gross NPAs dropped by 352 basis points to 6.24%. A steady improvement in return on equity and profitability helped the bank touch a market capitalisation of ₹1 lakh crore in the December quarter.

Central Bank of India

The Central Bank of India has also seen a stellar run on the bourses in the last one year period giving more than 147% return to investors. The stock has surged from ₹26.6 per share to ₹65.85 apiece in the past 12 months. The Central Bank of India hit a high of ₹76.9 and a low of ₹22.25 in the past one year.

A strong government support in terms of equity infusion over the last few years, comfortable capitalisation levels and high share of retail advances have propelled the shares of this public sector lender to new highs in the past 12 months.

Punjab and Sind Bank

The public sector lender rallied nearly 154% in the past one year to claim the fifth spot among top PSU Bank stocks. Shares of Punjab and Sind Bank have jumped from ₹26 to the current level of ₹66 in the last one year. The stock moved between a 52-week low of ₹23.1 apiece and the high of ₹77.5 per share during the past 12 month period.

Punjab and Sind Bank achieved a significant milestone in the December quarter with its total business standing at ₹2,01,914 as of December 31, 2023. The bank reported a 22.78% growth in its net worth at ₹7,454 crore in the third quarter. Improved asset quality, diversified loan profile and a strong focus on priority sector lending has boosted the stock.

Bank of Maharashtra

Shares of Bank of Maharashtra have gained more than 131% in the last one year. The stock has jumped from ₹26.35 per share a year ago to ₹61 apiece as of February 20, 2024.

The public sector lender, in the first nine months of FY24, reported a 61% growth in net profit at ₹2,837 crore as against ₹1,762 crore for nine months ended December 31, 2023. Its operating profit also zoomed 37% to ₹5,796 crore during the same period. Several factors like improved return on assets (RoA), a cut in bad assets and lower cost to income have driven the rally in the stock. Its total business grew by 18.89% to ₹4,34,000 crore as of December 31, 2023, compared to last year. Total deposits grew by 18% to ₹2,46,000 crore while gross advances increased 20% to ₹1,88,670 crore. The bank’s gross NPA declined 2.04% and net NPA reduced to 0.22% in the third quarter of FY24 year-on-year.

Performance of other PSU bank stocks in last one year

In addition to these top five, Uco Bank shares have rallied 122%, Union Bank of India and Canara Bank have rallied close to 100%. Indian Bank gained around 85% while Bank of India surged 84% in the past year.

Bank of Baroda gave returns of around 60% while banking behemoth State Bank of India appreciated by 44% in the past year.

In conclusion

The central public sector undertakings (PSUs) and the state-owned banks have caught the attention of the investors as well as market experts for their massive rally in the last one year. Going forward, while some market watchers suggest a cautious approach is PSU banks, many still see further upside.

PSU banks have underperformed in the past few years due to write-offs and NPA concerns. Though the several government initiatives and favourable macroeconomic conditions have fuelled the rally in these stocks the investors should evaluate each stock individually before taking the final decision.