The brokerage said it analysed eight PSU stocks and upon analysis, it found the thesis around Indian Bank interesting.
Indian Bank has displayed a relatively higher growth trajectory, growing at a 3-year growth CAGR of 6.8 per cent over FY18-21. This growth rate, YES Securities said, has to be viewed in the context of the pandemic constraining generic loan growth.
Capital, it said, is not a constraint for the bank, with the CET1 ratio sitting at 11.4 per cent as of December 2021, the second-highest in YES’ comparison universe.
“Importantly, the bank has the second-fastest growth in our 8-bank comparison universe, behind only SBI,” the brokerage said.
YES said Indian Bank has a superior growth profile compared with key PSU bank peers. It has several loan segments of healthy yield, whose share in the loan book can inch up going forward, providing a fillip to net interest margin (NIM).
“Headline asset quality metrics, admittedly, do not make for a good reading but we think asset quality is at an inflection point,” it said.
The brokerage still has SBI as its top PSU bank pick (potential upside of 42 per cent), followed by Bank of Baroda (34 per cent).
The Gross NPA ratio for Indian Bank at 9.1 per cent as of December 31 was the fourth highest in YES’ 8-bank comparison and a reflection of poor asset quality outcomes in the past for India Bank.
“However, GNPA is well-provisioned with a PCR of 85.5 per cent as of December 2021. Restructured book for Indian Bank is elevated at 5.1 per cent, the second-highest in our comparison universe. However, Indian Bank has been liberal in accommodating restructuring requests and management does not believe slippages from this book would be particularly material. Importantly, we see a sharp and significant turnaround in asset quality outcomes in the near term,” YES said.
YES Securities said wholesale banking NIM at 2.81 per cent for FY21 is fourth-best, with potential to improve going forward.
“Importantly, the evolution of loan book mix is already playing out for India, with the share of non-corporate loans having risen 800 basis points over June 2020-Dec 2021, the joint highest rise in our comparison universe Net interest margin for Indian Bank in FY21 was the 4th best among the eight sample banks,” it said.
