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Are PSU banks on the path of recovery?

Although many investors are expecting the turnaround of the financial position of PSU banks, it seems to be a tough ride. Read on to know the reasons

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Over the last six months, Kotak PSU Bank ETF has risen by more than 16 per cent, while the stock prices of large public sector banks, including SBI, PNB and Bank of Baroda, have rallied by around 25 per cent during the same period.

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Many investors are betting on the quick turnaround in the financial position of these banks. However, given the size of their non-performing assets, subdued profitability, lower capital adequacy ratios and their dependence on the government for regular capital infusion, this turnaround story seems to be a tough ride. In the present situation, the government is acting like parents safeguarding their children's mistakes.

These children (read PSU banks) have now got into the habit of committing costly mistakes regularly, which are then funded by government funds (read taxpayers' money). Hence, comes the most important question - is the recovery really possible for these banks? The following data paints a grim picture of how much the government has funded these PSUs over the last 10 years (capital infusion), their 10-year provisions (bad loans are written-off) and the current non-performing assets (NPA).

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