Public Sector Unit (PSU) Banks have recently undergone around 25% - 30% correction. Prior to this steep correction PSU Banks were already trading at cheap valuations compared to Private Sector Banks, the current prices have lead to further attractive valuations and dividend yields for several scripts in this sector. The below table provides ten year growth trajectory of 5 PSU Banks.
These scripts definitely come under my purchase radar for the reasons mentioned as under...
1) 3 of the above mentioned banks have a dividend yield of over 5%, this dividend is tax-free in the hands of the investor. And they have consistently provided above average dividend yield throughout the ten year period.
2) NPAT or Advances have grown by atleast 2 times their 2002-2003 levels. And with their branch strength and growth of the Indian economy, these banks will continue to grow.
If these scripts make for such great cases then what is the reason for the sharp fall in their prices. The fall mainly be attributed to the markets expectation that Non Performing Advances will increase, which in turn will lead to higher NPA provisions and lower profits. I would recommend Corporation Bank, IOB and Union Bank of India as good long term bets as they are available at P/B of 0.70 and PE of 0.60. Such cheap valuations coupled with great dividend yields provide ample margin of safety for future asset slippages.
|
Particulars
|
2003
|
2005
|
2007
|
2009
|
2012
|
|
Corporation Bank - Dividend Yield
|
2.78%
|
1.91%
|
3.01%
|
3.78%
|
5.06%
|
|
Dividend Declared
|
45%
|
65%
|
90%
|
125%
|
205%
|
|
Market Price
|
162
|
340
|
299
|
331
|
405
|
|
NPAT (Rs. In Crores)
|
416
|
402
|
536
|
893
|
1,506
|
|
Advances (Rs. In Crores)
|
12,029
|
18,546
|
29,950
|
48,512
|
1,00,469
|
|
Indian Overseas Bank - Dividend Yield
|
6.13%
|
3.11%
|
2.70%
|
5.23%
|
5.84%
|
|
Dividend Declared
|
16%
|
24%
|
30%
|
45%
|
45%
|
|
Market Price
|
26
|
77
|
111
|
86
|
77
|
|
NPAT (Rs. In Crores)
|
416
|
651
|
1,008
|
1,325
|
1,050
|
|
Advances (Rs. In Crores)
|
17,447
|
25,205
|
47,060
|
74,885
|
1,40,724
|
|
Oriental Bank of Commerce - Dividend
Yield
|
3.60%
|
1.18%
|
2.00%
|
4.08%
|
2.79%
|
|
Dividend Declared
|
45%
|
30%
|
47%
|
73%
|
79%
|
|
Market Price
|
125
|
254
|
235
|
179
|
283
|
|
NPAT (Rs. In Crores)
|
458
|
727
|
581
|
905
|
1,142
|
|
Advances (Rs. In Crores)
|
15,677
|
25,299
|
44,138
|
68,500
|
1,11,977
|
|
IDBI Bank - Dividend Yield
|
3.13%
|
1.61%
|
2.28%
|
2.03%
|
5.58%
|
|
Dividend Declared
|
15%
|
8%
|
15%
|
25%
|
55%
|
|
Market Price
|
48
|
50
|
66
|
123
|
99
|
|
NPAT (Rs. In Crores)
|
474
|
415
|
630
|
858
|
2,031
|
|
Advances (Rs. In Crores)
|
46,385
|
45,413
|
62,470
|
1,03,428
|
1,81,158
|
|
Union Bank of India - Divid Yield
|
6.33%
|
3.21%
|
2.79%
|
2.30%
|
3.92%
|
|
Dividend Declared
|
21.00%
|
35.00%
|
35.00%
|
50.00%
|
80.00%
|
|
Market Price
|
33
|
109
|
125
|
217
|
204
|
|
NPAT (Rs. In Crores)
|
314
|
712
|
675
|
1,387
|
2,081
|
|
Advances (Rs. In Crores)
|
21,383
|
29,425
|
53,379
|
74,348
|
1,50,986
|
These scripts definitely come under my purchase radar for the reasons mentioned as under...
1) 3 of the above mentioned banks have a dividend yield of over 5%, this dividend is tax-free in the hands of the investor. And they have consistently provided above average dividend yield throughout the ten year period.
2) NPAT or Advances have grown by atleast 2 times their 2002-2003 levels. And with their branch strength and growth of the Indian economy, these banks will continue to grow.
If these scripts make for such great cases then what is the reason for the sharp fall in their prices. The fall mainly be attributed to the markets expectation that Non Performing Advances will increase, which in turn will lead to higher NPA provisions and lower profits. I would recommend Corporation Bank, IOB and Union Bank of India as good long term bets as they are available at P/B of 0.70 and PE of 0.60. Such cheap valuations coupled with great dividend yields provide ample margin of safety for future asset slippages.
