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    Fixed deposits beat PSU bank stocks by a mile in race for better returns

    Synopsis

    Mutual fund houses are also positive on private sector banks rather than the public lenders.

    Money-making---TsThinkStock Photos
    Experts believe that private lenders are poised to gain as PSU banks stare at a credibility hit.
    Traditional investors have a liking for fixed deposits (FD) as against stocks. And they are not without reasons -- FDs have doubled their wealth over the past 10 years.

    Compare this with public sector bank stocks where the waiting game for returns bounty still continues.

    State Bank of India (SBI) is a case in point. Investors in the country’s biggest lender are scratching their heads with disbelief, given a measly 2 per cent CAGR (compounded annual growth rate) returns from the stock during February 2008-18.

    The scrip jumped to Rs 269.65 on February 20, 2018, from Rs 220.57 on the same day in 2008, translating into a rise of 22 per cent.

    Bank of Baroda (BoB) and Indian Bank may have a better record than SBI's 2 per cent annualised return, but 17 other public lenders fare worse. Juxtapose it with FDs of these banks that have offered returns anywhere between 6.50 per cent and 9.25 per cent to retail investors.

    The scam-hit second-biggest PSU lender Punjab National Bank (PNB) has seen its stock decline by over 4 per cent in the past 10 years. The scrip was down at Rs 116.55 on February 20, from Rs 122.51 on the same day of 2008.

    PSU lenders are going through difficult times, with mounting non-performing assets (NPAs) and the prevailing perception of their exposure to corporate frauds.

    Experts believe that private lenders are poised to gain as PSU banks stare at a credibility hit, going forward.

    Analysts Rajiv Mehta and Sachit Damani of IIFL in a report said, “Growing headwinds are likely to make public sector banks more lending averse. The popular perception of their higher exposure to corporate frauds makes the deposit market wary of their association. Consequently, private banks may see a flurry of growth opportunities knocking their doors, more pronounced in the wholesale lending segment where PSBs seem to bear a blanket aversion below a certain rating threshold. That’s precisely why private corporate lenders with strong underwriting process for corporate loans stand to benefit.”

    Gross NPAs of public sector lenders stood at Rs 7.85 lakh crore as of December 31, 2017, against Rs 7.40 lakh crore in the previous September quarter.

    The Centre in October 2017 announced Rs 2.11 lakh-crore capital infusion plan for state-owned lenders. It will infuse around Rs 88,000 crore in 20 PSBs before March 31.

    The market feels that the amount looks small to boost lending and revive growth. Market expert Mohsin Chamadia from LKP Securities is downbeat about the PSBs and advises investors to skip them altogether. “The capital infusion announced by the government last year is not sufficient for these banks,” he added.

    Chamadia does not see growth coming to the PSU bank pack in the next 2-3 quarters.

    Overall, PSU banks have lost up to 90 per cent in investor’s wealth in the past 10 years, with Indian Overseas Bank, Bank of Maharashtra and Dena Bank crashing up to 89 per cent. Bank of India, Oriental Bank, Corporation Bank, Allahabad Bank and Andhra Bank dropped 45-65 per cent during the same period.

    UCO Bank, Union Bank (I), IDBI Bank, Syndicate Bank, Central Bank, Vijaya Bank, J&K Bank all had tanked up to 47 per cent over the past 10 years.

    On an aggregate basis, PSBs suffered a net loss of over Rs 17,000 crore for the quarter to December 2017 against a net loss of Rs 358 crore in the previous year. For October-December, SBI reported a surprise net loss of Rs 1,886.57 crore over a net profit of Rs 2,152.23 crore in the year-ago period.

    On upcoming quarterly numbers, Mayuresh Joshi, Fund Manager, Angel Broking, in a chat with ET Now said, “I think weak numbers can be expected for the next quarter for the whole host of PSU banks. But you have to be very very selective here.”

    Benchmark Nifty50 has delivered 7.23 per cent annualised return in the past 10 years in comparison to Nifty PSU Bank index's a paltry 0.29 per cent.

    Private sector lenders have done a better job here. They have delivered a bucketful of returns to investors with a rally of up to 1,628 per cent in the past 10 years. IndusInd Bank jumped over 17 times to Rs 1,628 on February 20, from Rs 94.20 on the corresponding day of 2008.

    City Union Bank, YES Bank, HDFC Bank, Kotak Mahindra Bank, Federal Bank, Axis Bank and ICICI Bank all rallied up to 576 per cent during the same period.

    “Players with a low or negligible baggage of stressed loans should be quick to latch on to the opportunities. Efficient and well-governed mid- and small-sized private banks are thus staring at enhanced growth prospects,” said Mehta and Damani of IIFL.

    Chamadia of LKP Securities is positive on HDFC Bank and ICICI Bank.

    Mutual fund houses also are positive on private sector banks rather than the public lenders. “Private banks will continue to gain market share and even today, given the kind of issues that the PSU banking space is facing in terms of loans and deposits, private sector banks, especially the retail private sector banks, will continue to do well and grow faster than the market both in terms of loans and deposits,” said Shibani Sircar Kurian, VP & Head-Equity Research, Kotak Mutual Fund, in an interaction with ETNow.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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