Union Bank vs Canara Bank: Which PSU Bank is Better?

The March 2024 quarterly results of PSU banks like Union Bank of India and Canara Bank were keenly awaited.

Market participants were eager to understand the impact of high interest rates on net interest margins (NIMs) of banks and growth in total loans.

It does appear that both these banks have performed reasonably well on the above two parameters in the March 2024 quarter.

Union Bank and Canara Bank Q4 Earnings: Key Takeaways

# Union Bank

Union Bank of India has declared a dividend of Rs 3.6 per share.

The lender's net interest margin (NIM) stood at 3.09% in the March 2024 quarter vis-a-vis 2.98% a year earlier.

Domestic advances of the Mumbai-based bank grew 11.25% year of year (YoY) to Rs 8.73 lakh crore in the fourth quarter vis-a-vis 10.69% YoY growth reported in the December 2023 quarter.

Meanwhile, it was the asset quality that boosted positive sentiment. Union Bank's percentage of net NPAs came in at 1.03% in the March 2024 quarter vis-a-vis 1.7% a year ago.

The bank's net profit grew 19% YoY to Rs 33.1 billion (bn) in the fourth quarter.

# Canara Bank

Moving on to Canara Bank's earnings... the bank also declared a hefty dividend payout... Rs 16.1 per share.

Canara Bank's NIMs came in at 3.05% in the March 2024 quarter vis-a-vis 2.95% a year earlier.

Domestic gross advances grew 11.8% YoY to Rs 9.08 lakh crore in the March 2024 quarter vis-a-vis 12.6% YoY growth in the December 2023 quarter.

Percentage of net non-performing assets (NPAs) for Canara Bank was 1.27% in the March 2024 quarter vis-a-vis 1.73% a year earlier.

Earlier, larger private sector rival ICICI Bank reported NIMs of 4.4% in the March 2024 quarter vis-a-vis 4.9% in the March 2023 quarter.

Which PSU Bank Could Lead the Way?

The domestic economy is expected to grow 7% during FY25 and that is expected to ensure strong demand for credit.

Interest rate cuts are still 6-9 months away given the volatility in global oil markets and the RBI trying to keep inflation under check.

Union Bank of India and Canara Bank have over 8,000 branches across the country and that will be key to garnering low-cost savings and current account deposits and helping to keep NIMs steady for both banks.

Given these recent promising results, both banks are optimistic about robust growth in the near future and well-placed to capitalise on the pickup in the corporate credit cycle.

However, PSU bank shares have faced strong selling pressure over the last few trading days on account of the draft RBI regulations that seek to hike provisioning for infrastructure projects.

Performance of Canara Bank and Union Bank - 1 year

Canara Bank results were declared on Wednesday and on Friday the stock ended 0.5% higher at Rs 548.

Canara Bank trades at a P/E multiple of barely 5.8 times estimated standalone FY25 earnings.

Meanwhile, Union Bank of India ended flat on Friday at Rs 142, and the quarterly results were declared after the close of trade.

The Mumbai-based bank trades at a P/E multiple of 5.7 times estimated FY25 earnings.

In contrast, larger private sector rival ICICI Bank trades at a P/E of nearly 16 times estimated FY25 earnings.

Here's a table comparing these PSU banks on some important parameters -

Comparative Analysis

Company	Canara Bank	Union Bank	PNB	SBI	Bank of Baroda
ROE (%)	16.4	12.2	3.3	18.4	14.9
ROCE (%)	14.8	12.9	5.9	12.5	13.3
Latest EPS (Rs)	84.2	17.4	8.3	75.2	36.3
TTM PE (x)	6.5	8.2	14.9	10.9	7.1
TTM Price to book (x)	1.2	1.2	1.3	1.9	1.1
Dividend yield (%)	2.9	2.1	1.2	1.7	2.9
Industry PE	11.1
Industry PB	1.6

Data Source: Ace Equity, Equitymaster

In conclusion, PSU banks have overcome the challenges they faced in 2018. They've not only expanded their businesses but also effectively managed bad loans (NPAs).

The government's focus on reviving infrastructure spending through increased capital expenditure programs (capex) presents a clear opportunity.

This thrust is expected to significantly boost credit demand in the near term, placing Top PSU banks in a prime position to capitalize.

Assuming the government delivers on its capex plans, these two lenders can maintain their growth momentum. This positive outlook makes them attractive investment candidates.

However, it's crucial to remember that past performance is not always indicative of future results. Investors should conduct thorough research to assess the bank's long-term prospects before making any investment decisions.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...