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5 Best PSU Bank Penny Stocks in India

Feb 10, 2024

5 Best PSU Bank Penny Stocks in India

PSU banks are the talk of the town as they are having a dream run on the bourses.

The sector is out of the woods after several years, fiercely competing with the private sector.

This turnaround is visible as both major and minor PSU bank stocks have performed exceedingly well, reporting spectacular profits.

This massive expansion in profitability comes largely from the loan growth in the corporate book. However, the government's monumental capex plans have also contributed to the same.

With strong credit growth and cleaner balance sheets, the best PSU bank stocks could see more upside in the future.

The opportunity is even bigger for smaller counterparts, or PSU bank penny stocks as they're commonly known.

Penny stocks are shares of listed companies priced below Rs 100. In the US market, these stocks trade for less than a dollar i.e. for pennies.

Last week, we wrote about the infra penny stocks and explained how smaller counterparts can also capture a large chunk of the underlying growth.

In today's article, we'll look at the PSU bank penny stocks and what you could expect from them in 2024.

#1 Indian Overseas Bank

First on the list is Indian Overseas Bank (IOB).

It's one of the oldest and major public sector banks in India.

With a marketcap of Rs 1,344 billion (bn), IOB share price currently trades at Rs 71, well below the Rs 100 mark which investors usually refer as a filter for penny stocks.

In the past one year, IOB share price has spiked over 160% with most of the gains coming in the past one month.

chart

The recent rally comes after the bank posted stellar Q3 numbers.

The bank reported a 24% YoY rise in its total income at Rs 74.4 bn for the quarter ended December 2023.

It also reported a 30% YoY rise in net profit at Rs 7.2 bn against Rs 5.5 bn in the same period last year. The state-run lender attributed the growth to a rise in income and improved asset quality.

Interest income for the quarter rose to Rs 61.8 bn, a notable increase from Rs 50.6 bn in the same period last year.

Note that IOB recently decided to sell loans in the SME segment comprising 41 accounts worth Rs 2.1 bn.

Going forward, IOB expects a reduction in net Non-Performing Assets (NPA). The bank is optimistic about the forthcoming financial year, projecting a credit growth of 13-14%.

Additionally, after a break of about eight years, the lender is working to scale up its footprint by adding about 40-50 branches.

Prospects in the retail sector are promising, with a strategic focus on housing and jewel loan segments. IOB anticipates significant growth in its jewel loan portfolio, which currently stands at Rs 390 bn, having expanded 3.5 times over the past four years.

An interesting thing to note in case of IOB is that majority of the shareholding is owned by government, leaving only less than 4% of the total equity for public shareholders and making IOB a low free float stock.

As of December 2023, the Indian government holds over 96% stake in IOB.

#2 UCO Bank

Next on this list is UCO Bank.

The lender offers a host of value-added banking solutions to its customers including international banking services, services for NRIs loan schemes, deposit schemes, and value-added e-banking solutions.

They also possess a host of branches authorised for direct tax collection in India.

At the current price of Rs 61, UCO Bank has a market cap of Rs 724 bn.

In the past one year, shares of UCO Bank have rallied 115%.

chart

As can be seen from the chart above, UCO Bank shares have seen a steep rise in recent sessions. This comes following a decline in yields on government bonds after the interim budget.

As state-owned lenders are sizeable holders of long-term government securities, falling yields are positive for their bond portfolios.

The company recently posted its earnings where both gross NPAs and net NPAs showed improvement and operating margins also improved.

Going forward, the company plans to launch a new product for rooftop solar. This could just as well work as UCO Bank's differentiator.

The bank is currently projecting a higher loan amount disbursement for infrastructure and corporate loans compared to the last quarter.

Interesting trivia...UCO Bank is the first Indian bank to have received approval from the Reserve Bank of India (RBI) to open special rupee vostro accounts for foreign banks. Vostro accounts are accounts that foreign banks maintain with Indian banks to facilitate trade transactions in rupees.

UCO Bank is well positioned to benefit from this trend. The bank has a strong presence in international trade, and it is also one of the few Indian banks with experience in managing rupee vostro accounts.

As of December 2023, the Indian government holds 95.4% stake in UCO Bank.

#3 Central Bank of India

Next on this list is Central Bank of India.

As of December 2023, the government of India held 93.1% in the lender.

The bank has a network of 4,494 branches, and 4,083 ATMs across the country.

Shares of the company currently trade at Rs 68 per share and the bank has a market cap of Rs 590 bn.

In the past one year, Central Bank of India share price has gone up by 144%.

chart

The lender recently approached the government with a proposal for an offer for sale (OFS) instead of a fresh issue of equity through routes like qualified institutional placement (QIP) or a rights issue.

It has chosen to take the OFS route to avoid dilution of its equity capital base while increasing the public float of shares.

The bank also recently posted a net profit of Rs 7.2 bn for the third quarter.

As part of restructuring, it has restructured accounts from Manipur state due to disruptions, resulting in an increase in the standard restructured book.

Central Bank of India is taking various initiatives towards its digital segment. Its Cent Neo project aims to improve digital products for retail and wholesale banking.

Retail, agriculture and MSME segments continue to be the bank's major focus areas and form a huge chunk of its advances.

#4 Punjab & Sind Bank

Next on this list is Punjab & Sind Bank

It's a mid-sized corporate-focused public sector bank based out of New Delhi that operates through a network of 1,553 branches with branch concentration in north India.

Shares of the company trade at Rs 66.7 and in the past one year, shares have gone up by 127%. The bank has a marketcap of Rs 452 bn.

chart

Last week, the PSU lender posted its Q3 results and reported a 69% decline in its net profit to Rs 1.1 bn.

On the asset quality front, gross NPAs declined to 5.7% while net NPAs came down to 1.8%.

Notably, the bank has been increasing the provision coverage on the NPAs over the last few years.

Punjab & Sind Bank is planning to raise capital and launch a QIP in the near future.

It's also looking to leverage technology advancements for value-added services and digital lending.

In a move to support farmers and traders with low-interest rate loans, Punjab & Sind Bank recently announced to offer loans with no requirement for collateral and attractive interest rates.

As of December 2023, the Indian government holds 98.25% stake in the lender, leaving less than 2% for public investors.

#5 Bank of Maharashtra

Last on this list is Bank of Maharashtra.

The public sector bank is engaged in retail banking, corporate/wholesale banking, priority sector banking, treasury operations and other banking services.

The bank is headquartered in Pune and operates through a network of 2,341 branches across India.

Shares of the company currently trade at Rs 61, having surged 118% in the past one year. It commands a marketcap of Rs 435 bn.

chart

The bank recently raised Rs 10 bn via QIP route.

It has posted strong growth in recent quarters, driven by traction in credit growth in corporate and RAM segment.

In the December 2023 quarter, the bank posted record high operating profit, net profit, ROA, ROE, and cost-to-income ratio.

The bank's net profit increased by 33.6% to Rs 10.4 bn.

For the full year, the bank is aiming for 18-20% growth in advances.

It's also targeting a business of Rs 5 trillion and becoming a fully digitized bank by the end of financial year 2024.

As of December 2023, the government holds around 86% stake in the bank.

To know more, check out Bank of Maharashtra's latest shareholding pattern.

In Conclusion

So these were the PSU bank penny stocks in India.

Here's a table showing all listed PSU banks in India with some important parameters -

List of all PSU Banks in India

Bank Name ROE (%) NIM (%) Dividend Yield (%) Latest Price TTM PE (x) Price to BV Government holding (%)
Bank Of Baroda 15.3 3 3.3 262.7 7.7 1.2 64
Bank Of India 8 2.6 2.7 137.3 10 1 73.4
Bank Of Maharashtra 19.7 3 5.2 61.6 11.9 2.4 86.5
Canara Bank 17.1 2.4 4.2 570.7 7.4 1.3 62.9
Central Bank Of India 6.4 3 0 68 25.5 2.2 93.1
Indian Bank 13.3 3 3 531.7 9.9 1.4 73.8
Indian Overseas Bank 9.8 2.8 0 71.1 53.8 5.5 96.4
Punjab & Sind Bank 9.6 2.3 1.9 66.7 49.5 3.2 98.3
Punjab National Bank 2.8 2.5 1.4 123.9 21.3 1.4 73.2
The Jammu & Kashmir Bank Ltd. 15.2 3.8 1 144 9.9 1.5 59.4
UCO Bank 8.5 2.6 0 60.6 42.4 3 95.4
Union Bank Of India 12.2 2.7 4.5 149 8.4 1.3 77
Data Source: Ace Equity

As can be seen from the table above, most of these companies have high promoter holding and the government owns majority the shares.

The sharp rally that we've seen in PSU bank stocks in the past two years is also an effect of their low free floats.

A low float can help the stock price to rise quickly while the downside movement can also be as steep.

Investors taking on PSU bank penny stocks should consider the fact that government holding could go down as the government decides to cash in on the rally and sell some stake and raise divestment amount.

Finance Minister Nirmala Sitharaman said in the latest budget that government is open to the idea of disinvestment of equity stake in PSUs.

Overall, PSU bank stocks are expected to hog the limelight this year as demand for loans is on the rise and expected to remain strong with the economy expected to grow more than 6.5% over the next few years.

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...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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