SBI, Bank of Baroda, PNB & other PSU lenders' combined profit crossed Rs 1 lakh crore mark in FY23; which stock should you buy?

Public sector lenders have been showing consistent improvement in the past few years. The same has been visible in their cumulative net profit which hit Rs 1.05 lakh crore for the financial year ended March 2023 compared to a loss of Rs 53,246 crore in FY18. The combined net profit of PSU banks stood at Rs 66,539 crore in FY22.

Data showed that a substantial rise in net interest income and a fall in provisions and contingencies supported the bottom line of public sector lenders in the past few years. The combined net interest income of PSU banks has increased by 121 per cent to Rs 3.63 lakh crore in FY23 against Rs 1.64 lakh crore in FY18. The figure stood at Rs 2.98 lakh crore in FY18. On the other hand, provisions and contingencies of public banks have declined nearly 53 per cent to Rs 97,029 crore for the year ended March 2023 against Rs 2.05 lakh crore in FY18 and Rs 1.07 lakh crore in FY22.

The country’s largest lender by assets State Bank of India (SBI), which contributed 48 per cent to the total profit of PSU banks in FY23, reported around 59 per cent year-on-year (YoY) rise in net profit at Rs 50,232.45 crore for the financial year ended March 2023. Ashika Stock Broking is positive on SBI with a target price of Rs 810. “Looking ahead, we expect the bank to sustain impressive performance in the coming quarters on the back of a positive operating environment, depth of its products and strong management team.” The lender's shares traded at Rs 576 in the afternoon trade on May 22.

On the other hand, Bank of Maharashtra and UCO Bank reported 126 per cent and 100 per cent YoY growth in net profit in FY23.

Other public sector lenders namely Bank of Baroda, Canara Bank and Union Bank posted 94 per cent, 87 per cent and 61 per cent YoY growth in the bottomline in FY23. Brokerage LKP Securities has a ‘Buy’ rating on Bank of Baroda with a target price of Rs 239, indicating an upside of over 30 per cent from the current market price.

“We expect Bank of Baroda to post a ROA and ROE of 1 per cent and 15.2 per cent by FY24E led by steady balance sheet growth along with higher PCR and improving asset quality,” LKP Securities said in a report.

On the other hand, JM Financial is bullish on Canara Bank and has set a target price of Rs 371. Shares of Canara Bank traded at Rs 300 in the afternoon trade on May 22. “We expect Canara Bank’s earnings to be driven by healthy loan growth momentum, stability in margins and lower credit costs leading to improvement on return metrics leading to RoA and RoE of 0.96 per cent and 18.5 per cent, respectively,” JM Financial said.

Central Bank of India, Indian Bank, Punjab & Sind Bank, Indian Overseas Bank and Bank of India also posted a growth of somewhere between 18 per cent and 52 per cent in net profit in 2022-23, while the bottom line of Punjab National Bank (PNB) declined 27.47 per cent YoY during the same period.