Can PSU Banks Repeat the Magic of FY23, Delivering Returns of up to 96%, in the Upcoming Fiscal Year? - Business News, Finance News, Share Market News - Market trendz

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Wednesday 29 March 2023

Can PSU Banks Repeat the Magic of FY23, Delivering Returns of up to 96%, in the Upcoming Fiscal Year?

Can PSU Banks Repeat the Magic of FY23, Delivering Returns of up to 96%, in the Upcoming Fiscal Year?

Can PSU Banks Repeat the Magic of FY23, Delivering Returns of up to 96%, in the Upcoming Fiscal Year?

The fiscal year 2022-23 was a remarkable one for the public sector banks (PSBs) in India, as they outperformed the market and generated huge profits for their investors. According to some estimates, the PSU Bank index surged by more than 90% during the year, fueled by various factors such as lower credit costs, higher recoveries from bad loans, and improved efficiency. However, as the economy faces new challenges and opportunities, the question arises of whether PSU banks can sustain their momentum and repeat the same level of returns in the upcoming fiscal year 2023-24.

Before we explore the prospects of PSU banks in FY24, let's revisit the key drivers of their success in FY23. One of the most important factors was the reduction in the provision for non-performing assets (NPAs), which decreased significantly due to the resolution of some large accounts under the Insolvency and Bankruptcy Code (IBC) and the improved asset quality of the banks. For instance, the State Bank of India (SBI), the largest PSU bank, reported a 66% decline in provisions for bad loans in FY23, which boosted its net profit by more than 50%. Similarly, other PSU banks such as Bank of Baroda, Punjab National Bank, and Canara Bank also benefited from the lower NPA provisions and showed impressive growth in their bottom lines.

Another factor that helped PSU banks in FY23 was the rise in recoveries and upgrades of bad loans, which increased their net interest income (NII) and reduced their credit costs. As the economic activity picked up and the demand for credit increased, many borrowers started repaying their overdue debts or settling them through one-time settlements (OTS), which led to higher recoveries for the banks. Additionally, the improved credit rating of some companies and sectors allowed PSU banks to lend at lower rates and earn higher spreads, which added to their profitability.

Furthermore, the PSU banks' focus on digitalization and cost optimization helped them improve their efficiency and reduce their operating expenses. Many PSU banks adopted new technologies such as artificial intelligence, machine learning, and robotic process automation to streamline their processes and enhance their customer experience. Moreover, they rationalized their branch network, reduced their workforce, and renegotiated their vendor contracts, which led to significant savings in their expenses.

Now, coming to the outlook for PSU banks in FY24, there are both positive and negative factors to consider. On the positive side, the economy is expected to rebound strongly from the COVID-19 pandemic and achieve a growth rate of around 9% in FY24, according to some projections. This would boost the demand for credit and increase the banks' business volumes. Additionally, the government's push for privatization and consolidation of the banking sector could lead to some PSU banks getting merged or acquired, which could unlock value for their shareholders. Moreover, the RBI's accommodative monetary policy and low-interest rate regime could support the banks' net interest margins (NIMs) and spur their lending activity.

On the negative side, there are some risks and challenges that could dampen the PSU banks' performance in FY24. One of the major risks is the resurgence of the COVID-19 pandemic, which could disrupt economic activity and lead to higher defaults and NPAs. Moreover, the inflationary pressures and the rising bond yields could impact the banks' profitability and asset quality. Additionally, the competition from the private banks and the new-age fintech companies could intensify, as they leverage their digital platforms and innovative products to capture more market share.

In conclusion, while PSU banks had a stellar performance in FY23, delivering returns of up to 96%


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