PSU banks’ valuations turning less attractive

New Delhi: The current benign credit environment has supported asset quality for PSU banks and early warning indicators give no reason to worry, Kotak Institutional Equities said in a report.

Profitability has been further boosted by provision reversals and revenue recovery from bad loan resolutions. While these recoveries will likely hold up in FY2025E as well, a steady decline is inevitable thereby impacting profitability. Given the swift re-rating of valuation multiples, the brokerage has downgraded Canara Bank and PNB.

Bad loan recovery supporting revenues, but it will eventually decline, the report said. PSU banks currently carry a large pool of bad loans (Rs10.6 trillion) across GNPA and technically written-off (TWO) accounts.