Budget 2024: Brokerage sees SBI, Canara Bank, PNB, Indian Bank, BoB & Union Bank as 'best plays'

Economic Survey 2023-24, released on Monday, underlined that Reserve Bank of India's (RBI's) vigil over the banking and financial system and its prompt regulatory actions ensure that the system can withstand any macroeconomic or systemic shock. "Data from the RBI's Financial Stability Report of June 2024 show that the asset quality of scheduled commercial banks (SCBs) has improved, with the gross non-performing asset (GNPA) ratio declining to 2.8 per cent in March 2024, a 12-year low," it stated.

With that being said, a few brokerages continue to remain positive on the financial sector ahead of the Union Budget presentation.

"In the financial year 2023, private sector banks in India recorded assets worth over $1,016.93 billion while 12 public sector banks (PSBs) had assets worth over $1.7 trillion. This makes the banking and finance sector a vital part of the Indian economy and the backbone of any economy," Mehta Equities stated.

"It has faced a lot of heat due to the pandemic and now seen rebounding. Bank credit is seen growing 15 per cent per annum in fiscals 2023 and 2024, riding on broad-based economic recovery and stronger, cleaner balance sheets that allow lenders to expand credit," it added.

In terms of Budget expectations, the domestic brokerage said the banking sector should remain strong for sustainable economic growth with a focus on PSU bank privatisation and digitalisation perks.

"Major expectation includes a higher recapitalisation amount for PSU banks as they could rely on market borrowings. But, market participants would look for a roadmap to reduce the government's stake in public-sector banks. The budget should include fast-tracking the public sector bank (PSB) privatisation programme. This would help improve the efficiency of small and medium PSU banks," Mehta Equities highlighted.

The street expects that the Small Industries Development Bank of India Bank of India (SIDBI) or NABARD (National Bank for Agriculture and Rural Development) should be made the agency for offering active liquidity support to the NBFCs, the brokerage further mentioned.

As of November 2023, there were 33 private and public banks licensed in India. Besides these major banks, there are around 1,00,000 urban and rural cooperative banks, it also stated.

On the stock-specific front, the brokerage sees State Bank of India (SBI), Canara Bank, Punjab National Bank (PNB), Indian Bank, Bank of Baroda, Union Bank of India and ICICI Bank as best plays from the sector.

Separately, JM Financial expects tax relief on deposits into banks. It also said the focus will be on enhancing capex and infrastructure development. And, ICICI Bank, Axis Bank, HDFC Bank, SBI and BoB will be positively impacted.