A detailed comparison of the Top 12 PSU Banks on 18 different quantitative parameters based on Q3 FY22 results is discussed here.
As per IBEF, The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks, and 96,000 rural cooperative banks in addition to cooperative credit institutions. As of August 2021, the total number of ATMs in India reached 213,570.
In the current situation, around 35% of the market share of the banks in India are owned by the Private Sector, and a major portion i.e., 65% of the market share is owned by the Public Sector.
Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.
Top 12 PSU Banks Quantitative Analysis
Companies selected for Analysis:
We have selected the following 12 PSU Banks companies for the Quantitative Analysis. They are:
Parameters of Quantitative Analysis:
1) PE Ratio:
- PE Ratio generally means how much investors need to pay for each rupee of profit earned.
- In this segment, Indian Bank has the lowest PE Ratio of 4.01, and hence this bank is awarded full points and first rank.
- Next to Indian Bank, comes Union Bank of India Bank with a PE Ratio of 6.48, and Punjab & Sind Bank with a PE ratio of 8.02. Both these banks are ranked and scored accordingly.
- Indian Overseas Bank with the highest PE Ratio of 25.78 has scored only 1 point and ranked the eleventh rank.
2) P/B Ratio:
- P/B ratio or Price-to-Book Ratio is an important valuation ratio that evaluates whether a company’s stock is overvalued or undervalued by comparing the price of all outstanding ratios with the net assets of the company.
- It can be calculated by the following formula: Current Market Price of a Stock/ Book Value per share.
- Companies with lower P/B ratios are considered better and vice versa.
- In this case, Indian Bank grabs the first position with a PB ratio of 0.44. After Indian Bank, the lowest PB ratio is of Bank of India of 0.47 and hence given 2nd rank and 11 points.
- Here also, Indian Overseas Bank is awarded the last position for possessing the highest PB ratio of 1.96 among all other mentioned banks.
3) Return on Equity (RoE):
- Return on Equity (RoE) is another most common ratio used in fundamental analysis. We can calculate RoE by the following formula: Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
- Here also, the company with higher RoE is considered to be strong and vice versa.
- State Bank of India (SBI) is providing the highest return on equity of 11.48% and hence is rewarded with first position and full points as well.
- Indian Bank has the second-highest RoE of 11.28% after SBI.
- In this scenario, the Central Bank of India has performed the worst and is having a negative ROE of 2.25%, thereby have done ranking and scoring accordingly.
4) Return on Asset (RoA):
- RoA simply indicated how well the company can generate profits from its assets.
- The formula for calculating RoA: Net Income + Total Assets
- In the case of Banking & NBFC Institutions, Loans are the assets of these institutions and hence profit generated via interests, etc. by banks & NBFC are referred to as Return on Asset.
- Like RoE, the higher the RoA of a company, the stronger its positions and vice versa.
- Here, Punjab & Sind Bank outperforms all other banks by maintaining an RoA of 0.98% and grabs the first position as well.
- The second-best RoA among the top-12 PSU banks is Bank of Baroda with 0.74%.
- The last Position and lowest points among all the banks are awarded to the Central Bank of India for maintaining an RoA of just 0.33%.
5) Sales & Net Profit Growth 5 Years CAGR:
- In terms of Sales Growth, Indian Bank has registered the highest sales growth based on 5 years CAGR of 19.21% and hence given full points and first position.
- While Union Bank of India with 16.39% and Punjab National Bank with 11.23% sales growth on 5 years CAGR basis have obtained 2nd and 3rd position respectively.
- Coming next to Profit Growth based on 5 years CAGR basis, then Canara Bank has delivered the maximum profit of 113.81% among all others and hence received full points and the first rank as well.
- Punjab National Bank Bank manages to safeguard the second position here also with Profit Growth based on 5 years CAGR of 108.57%. Bank of India with a profit growth of 106.26% receives 3 points and 3rd position as well.
- Punjab & Sind Bank with negative profit growth of -13.98% got the least marks and the last position as well.
6) Sales & Net Profit Growth 3 Years CAGR:
- In the context of Sales Growth of Top-12 PSU Banks based on 3 years CAGR, Indian Bank has grabbed the first position with 31.71% sales growth.
- Next to the Indian bank are Union Bank of India, Punjab National Bank, Canara Bank, and Bank of Baroda with Sales growth of 28.06%, 18.94%, 18.84%, and 17.33% respectively.
- Talking about the profit growth of Top-12 PSU Banks based on 3 years CAGR, State Bank of India (SBI) has registered the highest Profit Growth of 160.28% in the last 3 Years and hence ranked first.
- In the same period, Canara Bank has reported profit growth of 117.10% and obtained a second position.
- Central Bank of India and Punjab & Sind Bank reported nil growth in profitability in the last 3 years and hence ranked and scored accordingly.
7) Net Interest Income as a % of Operating Income:
- It reflects the earnings of the bank from its core operations. Net Interest Income refers to the difference between the Interest Earned and Interest Expenditure.
- The more the Net Interest Income for a bank, the better it is for a bank and vice versa.
- Central Bank of India with the highest Net Interest Income as a % of Operating Income of 81.9% has been awarded 12 points and first rank.
- Punjab & Sind Bank with 81.6% NII as a % of Operating Income receives the second position.
- The lowest marks and last position is scored by Indian Overseas Bank with 57% NII as a % of Operating Income.
8) Retail Loan Book %:
- Higher Retail Loan Book % of the bank shows how much the bank is Retail Oriented.
- Indian Overseas Bank is in the number one position with the highest retail loan book of 52.8% among all other players.
- After Indian Overseas Bank, SBI and Central Bank of India have the highest share of the retail loan in their loan book of 48.2% and 48% respectively, and hence they are ranked and scored accordingly.
- Punjab & Sind Bank has the lowest retail loan of 31.5% and hence is ranked last and given only 1 point.
9) CASA Ratio:
- The bank should maintain a high level of CASA ratio for determining decent profitability.
- With the highest CASA Ratio of 55.05% among all other players on the list, Bank of Maharashtra wins the first position and here and takes away 12 points.
- Punjab & Sind Bank and Canara Bank both have has the lowest CASA Ratio of 32.63% and 34.60% respectively and hence ranked accordingly.
10) Gross & Net NPA:
- Central Bank of India is having the highest Gross NPA of 15.16% among all other concerned players in the list and hence receives fifth rank and one point only.
- SBI has the lowest Gross NPA among all of only 4.50% and hence given full points.
- In terms of Net NPA, Punjab National Bank has the highest Net NPA of 4.90% and hence received 1 point and last position.
- While Bank of Maharashtra with the lowest Net NPA of 1.24% tops the list.
11) Provision Coverage Ratio (PCR):
- Bank of Maharashtra has made the highest provision of 93.77% in these 12 banks and therefore given 12 points and first rank.
- Indian Overseas Bank and Union Bank of India with a Provision Coverage Ratio of 92.33% and 91.30 respectively and hence ranked accordingly.
- Whereas Punjab National Bank has the lowest Provision Coverage Ratio of 81.85% and hence given 1 point and 12th rank.
12) Net Interest Margin:
- In this context, the Central Bank of India outperforms other banks and tops the list with the highest Net Interest Margin of 3.77% among other PSU banks.
- Bank of India has the lowest Net Interest Margin of 2.27% and hence receives only one point and last rank.
13) Cost to Income Ratio:
- Overall, Cost to Income can be considered as a performance ratio that presents the cost incurred for generating income.
- The lower the Cost to Income ratio, the better it is and vice versa.
- Indian Overseas Bank has reported the lowest Cost to Income Ratio of 44.62% and hence ranked first.
- Punjab & Sind Bank has the highest Cost to Income Ratio of 64.20% and therefore ranked and scored accordingly.
14) Capital Adequacy Ratio:
- Ideally, the Capital Adequacy Ratio of the bank should be a big number.
- Here, Punjab & Sind Bank outscore others by reporting the highest Capital Adequacy Ratio of 17082% among all others and grabs the first position as well as full points.
- SBI with a Capital Adequacy Ratio of 13.23% is given 12th rank and 1 point.
15) Franchise- Number of Branches:
- SBI Bank has the largest network of branches of 22,253 branches in India as of December 2021 and hence tops the list with full points.
- Next to SBI is Punjab National Bank with 10,264 branches, 11 points, and a second position given.
- The third and fourth positions are acquired by Canara Bank and Union Bank of India with 9,773 branches and 9,113 branches respectively.
- Punjab & Sind Bank has the lowest network of a branch of only 1,531, hence ranked last.
18) Final Score:
- Considering the above quantitative analysis on certain parameters, SBI comes up as a clear winner among its peers with the highest 149 points.
- Indian Bank is in the second position with 142 points, and with 141 points Bank of Baroda obtains the third position.
- Central Bank of India with 89 points is at the bottom of the list.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.