PSU Stocks Watchlist: Top 5 Public Sector Banks to Watch Out for Big Dividends in 2024

The public sector undertaking (PSU) banking sector is experiencing a resurgence, shaking off past challenges to compete effectively with private banks.

This newfound strength is fuelled by record-breaking profit in the financial year 2023 and a significant surge in the first three quarters of the financial year 2024, nearly reaching the entirety of 2023 profits.

With 2024 drawing to a close, public sector banks (PSBs) are gearing up for a record-breaking dividend pay-out exceeding Rs 150 billion (bn) in the financial year 2024.

Additionally, the Reserve Bank of India (RBI) is considering revising dividend pay-out guidelines. The proposed revision suggests allowing banks with a net NPA ratio below 6% to declare dividends (currently 7%).

This could lead to even higher pay-outs in the future.

Let's look at the top five public sector banks that could flesh out big dividends in 2024.

#1 State Bank of India (SBI)

At the top of this list is India's largest banking institution, the State Bank of India (SBI).

The banking giant's advances, as of December 2023, stood at retail/personal (42.8%) followed by corporate at 33.8%, SME at 13.8% and agriculture at 9.6%.

Despite the bank's troubled background, its financial situation has improved over the years.

Between 2019-2023, SBI increased its advances at a CAGR of 10.8%. Its net profit has multiplied 18 times.

Consequently, the NPA ratio has improved remarkably, dropping from 5.7% in the financial year 2018 to 0.4% in 2023. It remains lower than HDFC Bank's, which has consistently stayed below 0.5%.

State Bank of India Financial snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-173.30%	492.30%	33.60%	49.70%	55.60%
Advances Growth (%)	13.60%	6.60%	5.30%	11.70%	17.00%
Deposits Growth (%)	8.00%	11.30%	13.50%	10.00%	9.30%
Return on Equity(%)	1.50%	8.30%	10.10%	13.60%	18.40%

Data Source: Ace Equity

The banking giant is confident of growth going forward led by the Government's capital outlay plans and an uptick in the credit demand across the country. Moreover, it is confident in generating sufficient capital organically to fund the growing business.

In the financial year 2023, the business showed strong performance, leading the banking major to announce a dividends per share (DPS) of Rs 11.3, marking a 60% increase from 2022. Consequently, the dividend yield also surged from 1.4% in the financial year 2022 to 2.2% in 2023.

Over the nine months ending in 2024, the lender's net profit has surged by 21% year-on-year. Hence, there's a favourable likelihood of rewarding its shareholders generously.

To know more about the bank, check out its financial factsheet and latest financial results.

#2 Bank of Baroda (BoB)

Next on this list is Bank of Baroda (BOB).

Bank of Baroda is the second largest public sector bank in India after SBI.

Between 2019-2023, Bank of Baroda has doubled its advances, registering a CAGR of 17.2%. Like its peers, the lender has also managed to reduce its net NPAs. They have decreased by one-third, suggesting improved asset quality.

Over the years, the bank has leveraged its corporate relationships to enhance its loan book.

This has led to the RoE growing by four times over the last four years and stands at 14.9% in the financial year ending 2023.

Bank of Baroda Financial snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-156.90%	-13.30%	54.30%	429.60%	90.70%
Advances Growth (%)	10.60%	45.90%	2.40%	10.20%	20.90%
Deposits Growth (%)	9.60%	46.20%	2.30%	8.00%	14.80%
Return on Equity(%)	2.40%	1.60%	1.90%	8.80%	14.90%

Data Source: Ace Equity

During the nine months leading up to 2024, the lender reported a 39.8% surge in profit compared to the previous year.

Much like its peer, the lender reported a jump in net profit in the preceding year as well, rewarding shareholders with hefty dividend payments. While the DPS was up by 92%, the dividend yield rose from 3.2% to 3.8% in the financial year 2022 to 2023.

With this year's profits also showing promising results, there's a strong likelihood that the bank will continue to provide favourable rewards to its shareholders.

To know more about the bank, check out its financial factsheet and latest financial results.

#3 Union Bank of India

Third on this list is Union Bank of India.

Union Bank is a mid-sized bank with a branch network of 8,500.

Between 2091-2023, the state-run lender's advances have grown at a CAGR of 21.3%. In addition to expanding advances, the bank asst quality has also improved.

The NPAs of the bank have fallen dramatically, from 3.8% in the financial year 2018 to 1.7% in 2023.

The lender has transformed its business, converting losses into profits. It generated profit between 2021-2023 after three consecutive years of losses.

Union Bank Financial snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-43.80%	3.70%	-193.00%	84.20%	61.90%
Advances Growth (%)	2.80%	6.30%	86.80%	11.80%	15.20%
Deposits Growth (%)	1.80%	8.40%	104.60%	11.70%	8.30%
Return on Equity(%)	-12.40%	-11.00%	6.30%	8.30%	12.20%

Data Source: Ace Equity

The turnaround was led by the amalgamation scheme in April 2020 and the synergies arising from the same. After Union Bank's amalgamation with Corporation Bank and Andhra Bank, the combined entity became the fifth-largest PSU bank in terms of the branch network.

Over the nine months leading up to 2024, the lender's profits surged by a notable 84% on a year-on-year basis. This impressive growth follows a strong showing in the financial year 2023, where net profit grew by 61.9%.

This growth led to generous rewards for the bank's shareholders, with the DPS growing by 58%. Consequently, the dividend yield jumped from 4.4% to 4.6% in the financial year 2022 to 2023.

Given the promising results of this year's profits, there is a high probability that the bank will continue to reward to its shareholders.

Looking ahead, the bank is optimistic about robust growth in the near future and is well-placed to capitalise on the pickup in the corporate credit cycle.

To know more about the bank, check out its financial factsheet and latest financial results.

#4 Canara Bank

Fourth on this list is Canara Bank.

A large part of the lender's advances come from the corporate (42.1%) and retail (28.1%) segments followed by agriculture (15.6%) and micro, small and medium enterprises (14.2%).

Between 2019-2023, the bank has doubled its advances, reporting a CAGR of 16.8%. And while the advances have doubled, the NPAs have halved, from a whopping 7.5% in the financial year 2018 to 1.7% in 2023. This suggests a massive improvement in asset quality.

The robust growth has enabled the lender to expand its margins, turning its losses into profits and boosting its return on equity. The average RoE for the past 5 years stands at 16.4%.

Canara Bank Financial snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-113.40%	-469.60%	-233.60%	114.50%	86.50%
Advances Growth (%)	12.10%	1.00%	47.80%	10.10%	18.10%
Deposits Growth (%)	14.20%	4.40%	61.70%	7.50%	8.50%
Return on Equity(%)	1.80%	-6.10%	6.10%	10.00%	16.40%

Data Source: Ace Equity

The bank's heightened emphasis on credit expansion has propelled its success. It has generously rewarded investors for its stellar performance in the financial year 2023. With a 84% increase in DPS, the dividend yield rose from 3.3% to 4.7%.

Over the nine months leading up to 2024, the lender's profits surged by 45% on a year-on-year basis. Considering the encouraging outcomes of this year's profits, it's highly likely that the bank will persist in providing advantageous rewards to its shareholders.

To know more about the bank, check out its financial factsheet and latest financial results.

#5 Punjab National Bank (PNB)

Last on our list is Punjab National Bank.

The state-owned bank has the second-largest branch network in the country with ~10,000 branches.

Over the years, PNB has lost market share to private banks as they have ramped up their corporate business and leveraged their strong deposit franchises to offer lower rates.

However, the bank's business has been recovering, which explains the growth in advances. It has turned the losses into profits in the past four years.

Between 2019-2023, the bank's advances have grown at a CAGR of 13.8%. Asset quality has improved, as depicted in the falling levels of net NPAs. The net NPAs have halved, falling from 11.2% in the financial year ending 2018 to 0.99% in the financial year ending 2023.

The capital adequacy ratio (CAR) has been steadily increasing, up from 9.2% in the financial year ending 2018 to 14.5% in 2022. It is well above the regulatory norm of 12%.

Punjab National Bank Financial snapshot (2018-2022)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-20.30%	-103.60%	492.40%	70.80%	-16.50%
Advances Growth (%)	5.40%	3.10%	42.50%	8.00%	14.10%
Deposits Growth (%)	5.20%	4.20%	56.80%	3.60%	11.80%
Return on Equity(%)	-25.00%	0.70%	3.00%	4.20%	3.30%

Data Source: Ace Equity

The performance puts the lender on the fast track to hoovering up all the benefits from robust capital spending and the credit demand offtake.

The bank has not shied away from rewarding its shareholders despite a dip in profitability in the financial year 2023.

Despite a 16.5% fall in net profits in the financial year 2023, the lender maintained its a DPS of Rs 0.64. And now, with a 3x year-on-year jump in net profit in the nine months ending December 2023, there is a good chance the bank will not just maintain but enhance its dividend payouts.

To know more about the bank, check out its financial factsheet and latest financial results.

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 PSU banks in a prime position to capitalize.

Assuming the government delivers on its capex plans, well-capitalized PSU 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.

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...