SBI vs Bank of Baroda vs Canara Bank: How India’s top PSU banks performed in Q4

• India’s largest public sector lenders SBI, Bank of Baroda and Canara Bank delivered another quarter of robust growth in loans and deposits.
  
• Despite delivering record profits in both Q3 and Q4 FY23, the SBI stock has underperformed over the last six months.
  
• Here’s how India’s three largest PSU banks stack up against each other after Q4.
  

Indian PSU banks have yet again delivered another stellar quarter of earnings in the fourth quarter, with asset quality improvements. India’s largest lender State Bank of India posted its third consecutive quarter of all-time high net profit, while other major PSU banks like Bank of Baroda and Canara Bank also delivered an improvement in their performance.

Attractive valuations and decade-best metrics have led to analysts calling Indian banks a “compelling buy”. On the asset-liability management front, too, Indian banks are well-placed when compared to their US peers, having passed Jefferies’ Silicon Valley Bank test.

Despite delivering industry-beating performance in both Q3 and Q4 FY23, the SBI stock has underperformed over the last six months. SBI’s shares are down 4% in the last six months, while Bank of Baroda’s shares have risen by over 11% in the same period. Canara Bank’s shares, however, have fallen 6% in this time. The underlying Nifty Bank index has risen by 3% in this period.

Lending credence to analysts’ views of Indian banks having attractive valuations is the fact that all these three banks are currently trading at a discount to the broader banking sector.

While Nifty Bank is currently at 2.8x of FY25 estimated book value, SBI is trading at 1.4x, Bank of Baroda at 0.9x and Canara Bank at 0.7x of their estimated FY25 book values.

With their Q4 numbers now in, here’s how India’s top three public sector banks stack up against each other:


Source: Company reports

Essentially, SBI’s net profit and net interest income is more than twice of Bank of Baroda and Canara Bank’s put together. It also has a better net interest margin (NIM), but its provision coverage ratio (PCR) is slightly lower than the other two banks. It is worth noting that the Reserve Bank of India has prescribed a PCR of 70%, so all the three banks are comfortably placed in this regard.

Driving the profitability of both SBI and Bank of Baroda during Q4 were improvements in NIMs and asset quality, with both the lenders beating analyst estimates. On the other hand, Canara Bank missed analyst estimates with its NIMs remaining relatively flat.

A similar pattern emerges for the full financial year 2022-23.


Source: Company reports

Loan growth stays in the fast lane, asset quality continues to improve

Mirroring the rest of the industry, all the three public sector lenders reported robust loan growth during the March quarter. While SBI reported 16% YoY loan growth to ₹44.24 lakh crore, Bank of Baroda reported 18.5% growth to ₹9.7 lakh crore, and Canara Bank reported 16.41% growth to ₹8.63 lakh crore during the quarter.


SBI and Bank of Baroda’s loan growth was driven by the retail segment which outpaced growth in the corporate segment. On the other hand, corporate and agricultural credit led Canara Bank’s loan growth.

While SBI towers over its PSU and private peers thanks to its immense asset base and presence, Bank of Baroda and Canara Bank delivered comparable or even better improvements across key metrics like net interest margins, provision coverage ratio, and sharper asset quality improvements than SBI.

Here’s how they stack up against each other in terms of non-performing assets:


Source: Company reports | NPA ratios as at Q4 FY23 | Note: A decline in NPA ratios is a positive change

Bank of Baroda pulls ahead in deposit growth

Bank of Baroda pulled ahead of SBI and Canara Bank in terms of deposit growth – the lender’s deposits grew by 15.1% YoY to ₹12.04 lakh crore.

SBI remained perched at the top with deposits of ₹44.24 lakh crore, but the pace of growth was relatively slower at 9.19%.

Canara Bank was the slowest in terms of deposit growth, at 8.54%, with its deposits standing at ₹11.79 lakh crore.


However, all the three lenders reported an increase in their cost of deposits – SBI’s cost of deposit rose by 9 basis points sequentially to 3.99%, while Bank of Baroda witnessed a 42 basis points increase to 4.43%. Canara Bank’s cost of deposit rose 19 basis points to 4.38%.

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