Canara Bank & Union Bank's Strong Q2 Results: What Next for these Top Performing PSU Bank Stocks?

In the first quarter of financial year 2024, public sector undertaking (PSU) banks reported strong results and investors were keenly awaiting the results of leading players in this sector in the second quarter.

Of particular interest to investors is the ability of PSU banks to effectively manage a rising interest rate scenario.

Union Bank Reports Strong Numbers

Post market hours on Friday, Union Bank of India reported a strong 90.1% growth in its net profit to Rs 35.1 billion (bn) in the September 2023 quarter, helped by its net interest income that grew 9.9% year on year (YoY) to Rs 91.3 bn.

Provisions and contingencies declined 56.6% YoY in the quarter under review to Rs 17.7 bn.

Its net interest margins (NIMs) were at 3.18% in Q2FY24 vis-a-vis 3.15% a year earlier, and 3.13% in the June 2023 quarter.

The most tracked and important aspect of banks - asset quality also showed strong improvement for the Mumbai-based PSU bank.

Its percentage of non-performing assets (NPAs) was 1.3% in the September 2023 quarter vis-a-vis 2.64% a year earlier, and 1.58% in the June 2023 quarter.

Advances grew 9.5% YoY in Q2FY24 vis-a-vis 13.9% YoY growth reported in the June 2023 quarter.

Union Bank of India had reported a growth of 107% YoY in its net profit in the June 2023 quarter.

Canara Bank Joins the Bandwagon

Meanwhile, earlier that week on Thursday, Canara Bank reported a 42.8% YoY growth in its standalone net profit to Rs 36.1 bn in the September 2023 quarter.

It was helped by a 19.8% YoY growth in its net interest income to Rs 89 bn in the quarter under review.

The Bengaluru-based bank had reported a 74.8% YoY growth in its net profit in the first quarter of current financial year.

Loan growth was 12.1% YoY in the second quarter of current financial year, vis-a-vis 14.5% YoY growth reported in the June 2023 quarter.

Canara Bank has managed to broadly offset the rising interest rate scenario - its net interest margins (NIMs) came in at 3.02% in the second quarter of current financial year, a rise of 19 basis points YoY. Its NIMs were 3.05% in the first quarter of current financial.

Asset quality of the bank was also satisfactory -- percentage of net non-performing assets was 1.4% in the second quarter of current fiscal versus 2.19% a year earlier, and 1.57% in the June 2023 quarter.

Growth Prospects for Both These Banks...

The ability of these PSU banks to grow their loan books and continue to manage rising interest rates will remain key factors.

Union Bank of India has guided for a loan growth of 10 - 12% during the current financial year and NIMs of about 3% during this period.

Meanwhile, Canara Bank has guided for loan growth of 10.5% YoY in the current financial year and NIMs are also expected to be 3.05% in the current financial year.

Investors on Dalal Street

Canara Bank shares hit a 52-week high of Rs 387.7 on Friday and ended the day's trade 5.8% higher at Rs 380.7.

Union Bank of India results were declared after the close of Friday trading, however, the stock ended 5.5% higher to close at Rs 100.

The stock had reached its 52-week high of Rs 113.4 earlier this month on 4 October 2023.

Canara Bank trades at just 4.7 times its estimated standalone earnings for the year ended 31 March 2024, while it is 5 times for Union Bank of India.

All these factors make both these banks compelling at the current levels.

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