Why PSU Bank shares are outperforming?

Shares of banks like Indian Bank and Union Bank are up by 40 per cent in the last thirty days.

There are some catalysts that are helping state-owned banks to outperform. For example, last month, to tackle the growing problem of mounting bad debts in the banking sector, Union Finance Minister Nirmala Sitharaman announced the setting up of National Asset Reconstruction Company Limited (NARCL) under the Companies Act. Under the new set-up, the NARCL will take over loans worth almost Rs 2 lakh crore from the books of commercial banks at a mutually agreed price. The NARCL will then try to resolve these bad loans in a time-bound manner with help from the India Debt Resolution Company Limited (IDRCL). Indian banks and especially public sector banks have been facing the NPA problem since 2014 without any long term fixes on sight, however, the formation of NARCL and IDRCL is likely to give a stable solution to this. Besides, it will also help banks to free up some liquidity that will help them in credit growth. In addition to this better Q2FY22 result is also aiding the performance of the bank.   

Banking stocks are outperforming the overall market. Even within banks, state-owned banks are showing better resilience. Banks like Indian Bank and Union Bank are up by 40 per cent in the last thirty days. In the same period, the best performing bank from the private sector has been Federal Bank, whose share price is up by 20 per cent. This better performance in the last one month has helped the PSB stocks to lift last one-year performance also. They are up by 114 per cent in last one year compared to 63.5 per cent by Bank Nifty. 

Performance of PSU Banks in last one year and one month.