Loan waivers, NPA issues: Stay away from PSU banks for now, say analysts

The Nifty PSU Bank index lost nearly 2% on Monday on reports that the government is considering farm loan waiver in Maharashtra, fuelling concerns that the step will put additional burden on banks that are already grappling with a high level of non-performing assets (NPA). Over the years, 24 PSU banks have amassed Rs 6.4-lakh crore of bad assets as of March 2017, AceEquity data show, up 22% year-on-year (y-o-y). Some of these banks, such as Indian Overseas Bank (IOB), IDBI Bank, Central Bank, UCO Bank and Bank of Maharashtra, had gross NPAs in excess of 15% of their total advances in Q4FY17. Nifty Trading Tips

On the other hand, provisions made by these 24 banks stood at Rs 5.5-lakh crore for the March quarter, up 51% over December quarter, but down 20% to Rs 6.8 lakh crore over March quarter of FY16. In this backdrop, analysts advise investors to stay away from the sector despite attractive valuations in some cases, at least till the ongoing efforts by the Reserve Bank of India (RBI) and the government start bearing fruits, leading to visual signs of improvement in asset quality. Over the last one year, these stocks have rallied as much as 190%. By comparison, the S&P BSE Sensex and the Nifty50 indices have gained around 17% each. Among individual stocks, Indian Bank, Vijaya Bank, Canara Bank and Punjab National Bank gained 85% to 190% during the same period. Future & Option Trading Tips