Should you consider investing in PSU Bank Stocks?
In 2017, the PSU banking sector faced significant challenges due to the NBFC crisis and fraudulent activities involving individuals like Nirav Modi and Vijay Mallya, which resulted in a surge in bad loans. However, the situation has now changed. State-owned banks, excluding the prominent State Bank of India, have displayed an impressive performance for the fiscal year ending in March 2022. The net profit of SBI has grown 10 times from Rs.3351 crores in March’19 to Rs.37,183 crores in March’22.
Here’s why investing in PSU bank stocks in 2023 could be a prudent decision:
In the current market scenario, marked by declining markets and faltering economies, PSU bank stocks are demonstrating promising prospects.
Financial experts anticipate that the banking sector will remain a top choice for investment in 2023, given the expected recovery of the domestic economy. This recovery is anticipated to fuel earnings growth for Indian companies, with the banking sector leading the way.
Favorable Economic Environment:
The growth of the Indian economy into a $5 trillion economy hinges upon the expansion of the banking sector and increased credit uptake, both of which are areas where PSU banks are well-positioned to capitalize.
PSU banks are particularly poised to benefit from the revival of the rural economy.
Traditionally PSU Banks have had a heavy corporate book which used to be a drag on the PSU Bank performance. But with the high government and private Capex expenditure and increased utilization of working capital limits there has been a pick up in corporate credit demand for PSU Banks.
Conclusion:
Improving Asset Quality, Growth in Loan Book, Better Capital Adequacy ratio and Lower Loan Provisions are expected to improve the performance of operating performance of the PSU Banking space.
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