Public sector banks yet to regain all-time highs after recent rally, surge in m-cap

Shares of many state-owned banks have struggled to hit record highs in recent gains, but some have risen 50-90%. Market capitalizations of most public banks are at record highs, but share prices have not reached record levels.
For example, the market capitalization of Bank of Baroda has now risen to Rs 103 crore. Still, the share price is about 9 per cent below its all-time high of Rs228.90 on 23 January 2015, when its market capitalization was Rs4790.1 billion.
Analysts believe the rise in market capitalization was due to new government-issued shares, which added around Rs 3.12 billion to the banking sector from 2010 to 2019. A further Rs 22 crore has been invested since 2020, but no additional investment has been made since 2022.

The rally in public sector banks began in January 2021, well ahead of the current rally. Since January 1, 2021, the Nifty PSU Bank Index is up more than 154% of his. However, none of the stocks in the index have reached all-time highs. Three public sector banks — Canara Bank, Indian Bank and Baroda Bank — hit 52-week highs during the rally. Indian Overseas Bank, Bank of India, Central Bank of India and Union Bank of India are now more than 80% below their all-time highs. Uko Bank, Punjab National Bank, Punjab and Sindh Bank, Maharashtra Bank and Kanara Bank are down 60-78% from their all-time highs.
The Indian Bank is down 28% from its all-time high and the National Bank of India, India’s most respected sovereign financial institution, is now down about 6% from its all-time high. “These banks have lost most of their market capitalization due to lower profitability, rising distressed assets and valuation downgrades,” said Devarsh Vakil, deputy head of retail research at HDFC Securities. “These banks need to survive a new credit cycle with consistent earnings and book growth without incurring large NPAs for investors to return to higher valuation multiples. This is a requirement for these banks to revisit previous highs and trade above them.”

The current recovery in the banking sector has outpaced that seen during the 2007-2010 US recession. It is worth noting that the banking sector as a whole is currently thriving. Public sector banks posted net profits totaling Rs 1.05 crore in FY2023, with SBI and others reporting record profits. All public broadcasters saw a decline in bad debt, both gross and net, both as a percentage of loans and in absolute terms.
Since 31 March 2022, PSB’s market capitalization increased by 43.7 per cent to Rs 10.47 billion. By contrast, the market capitalization of private banks increased by 21.7% to Rs 26.55 lakh.

However, there is some concern over state-owned banks. The Reserve Bank of India said Expected Credit Loss provisioning norms will be implemented for banks in FY24. Although the transition to these norms will occur over five years, analysts said this will dampen the prospects of public sector banks, which generally have lower levels of floating provisions.