Indian public sector bank stocks staged a notable rebound in October, even as frontline indices suffered their worst monthly performance in more than four years. Remarkably, the Nifty PSU Bank index managed to close the month with a modest decline of less than 0.50% as compared to over a 6% drop in the Nifty 50 and Sensex.
Although October marked the third consecutive monthly decline for the Nifty PSU Bank index, it ended the last week with a strong gain of nearly 8%—its largest weekly rise in 10 months. This rally also helped the index recover 9.6% from its October low, signalling renewed momentum in PSU banking stocks despite the broader market weakness.
This resilience was largely driven by stronger-than-expected September results from banks like Bank of Baroda, Indian Bank, and Canara Bank, which surpassed market forecasts. Additionally, domestic brokerage firms raised target multiples for these stocks, providing momentum for a rally in recent sessions.
Indian Bank concluded the week with a gain of 17.5% and was the top gainer in the PSU bank pack. It was followed by Central Bank of India, Bank of India, Bank of Maharashtra, and Punjab & Sind Bank, all of which ended the week with gains ranging from 10.3% to 15.6%.
Impressively, all 12 constituents of the index ended the last week with gains of over 5%.
So far, nine out of twelve public sector banks have reported their September quarter results, with each showing a rise in net profit and an improvement in asset quality. Punjab National Bank (PNB) led the gains with a profit surge of over twofold, reaching ₹4,306 crore, supported by increased interest income and stronger recoveries.
Asset quality also improved, with PNB’s gross NPAs falling to 4.48% from 6.96% a year ago, while net NPAs dropped to 0.46% from 1.47%. Similarly, Central Bank of India posted a 51% profit increase to ₹913 crore, in Q2 with gross and net NPAs decreasing to 4.59% and 0.69%, respectively.
UCO Bank reported a 50% jump in net profit to ₹603 crore, alongside reductions in gross NPAs to 3.18% and net NPAs to 0.73%. Bank of Baroda recorded a 23% rise in profit to ₹5,238 crore. Its gross NPAs improved to 2.5% and net NPAs to 0.6%.
Indian Bank also saw a 36% increase in profit, reaching ₹2,707 crore, while bringing gross NPAs down to 3.48% and net NPAs to 0.27%.
While public sector banks reported improvements in asset quality, private sector lenders like HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, RBL Bank, and IDFC First Bank saw gross bad loans as a percentage of total assets increase by 2 to 19 basis points during the quarter.
Most of these private banks have raised provisions, setting aside additional funds to cover potential defaults, especially in anticipation of rising pressures in unsecured lending segments.
Lenders with a higher share of unsecured loans are experiencing greater stress compared to those focused on secured lending. Segments such as personal loans and credit cards, in particular, are facing heightened default risks.
Anil Rego, Founder and Fund Manager at Right Horizons, highlighted that the government’s post-pandemic focus on infrastructure and capital expenditure, along with healthier balance sheets, improved governance, favourable commodity margins, and rising order volumes, have fueled the robust performance of PSUs. He noted that the sharp recent run-up in Public Sector Banks (PSBs) follows a decade of underperformance, as PSBs have seen a substantial profit revival over the past five years, with PSU earnings recording a CAGR of 33.8% from FY19 to FY24.
Rego further pointed out that the PSUs' share in the profit pool has grown to 36% in FY24, up from the 17-30% range of previous years, with loss pools significantly declining—from nearly 45% of the profit pool in FY18 to just 1% in FY24. He emphasised that India’s macroeconomic fundamentals are solid, with healthy GDP growth, moderate inflation, manageable current account and fiscal deficits, a stable currency, strong corporate earnings, and deleveraged corporate balance sheets.
Rego also expects continued PSU profitability, particularly led by a recovery in PSU banks. Rising commodity prices have supported earnings growth for metals and oil & gas PSUs, while the government’s focus on capital expenditure, manufacturing, and defence has further strengthened industrial PSUs. said As a result, Rego anticipates a sustained recovery in PSUs' earnings contributions, which is likely to continue driving price trends in the sector.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
