Global brokerages cheer PSU bank recap: Here are top stock picks

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Published: January 25, 2018 9:37:23 AM

Global brokerages from Credit Suisse, Macquarie and CLSA cheered for PSU bank shares, after India's government announced on Wednesday to inject nearly Rs 88,140 crore combined into PSU banks in a bid to boost lending and tackle the burgeoning NPAs.

CLSA says that while the recapitalisation meets capital needs of the banks, follow through will be key in FY19. (Image: Reuters)

Global brokerages from Credit Suisse, Macquarie and CLSA cheered for PSU bank shares, after India’s government announced on Wednesday to inject nearly Rs 88,140 crore combined into PSU banks in a bid to boost lending and tackle the burgeoning NPAs. CLSA says that while the recapitalisation meets capital needs of the banks, follow through will be key in FY19. The Finance Ministry on Wednesday tightened the noose on public sector banks (PSBs), saying that the massive Rs 2.11 lakh crore bank recapitalisation announced by the government will alongside reforms by the banks to ensure that the banking crisis does not get repeated.

In October last year, the Union Cabinet approved an unprecedented Rs 2.11 lakh crore for recapitalisation of banks over the next two years in a bid to clean banks’ books and revive investment in a slowing economy.

Research house Macquarie noted that these are just baby steps to tackle the issue of NPAs. Credit Suisse observed that the recap plan was largely on expected lines. In terms of specific banks, Macquarie said that Bank of India received higher than expected amount. Notably, BOI will receive Rs 9,232 crore. In case of Canara, PNB and BoB, Macquarie said the amounts were in line with estimates. Jefferies noted that the step is a positive move for the banking sector.

Track live stock price: CanaraPNB and BoB

Sharing top picks from the space, CLSA said that it continues to prefer SBI from the PSU bank space. “We continue to prefer banks with strong deposit franchise,” the firm noted. Credit Suisse said that SBI, BoB and PNB are its top picks. “We maintain outperform on HDFC Bank and ICICI Bank.

Notably twenty-one public sector banks account for more than two-thirds of banking assets. These banks also account for a record Rs 9.5 lakh crore of bad loans or non-performing assets. The government earlier this month sought parliamentary nod for additional Rs 80,000 crore bonds for the PSBs which are sitting on a pile of Rs 9.5 lakh crore bad loans and approved a proposal for infusion of Rs 7,577 crore in 6 weak PSBs.

Yesterday, the Nifty PSU Bank index rose 3.49% and ended the session at 3,965.60 ahead of the Centre’s bank recapitalisation announcement on Wednesday. All the 12 constituents of the index closed with gains. The index has recorded a gain of 34% since the announcement of bank recapitalisation scheme in October 2017.

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