Banking stocks have had an excellent run in the last one year. In the run-up to the BJP-led government’s maiden budget last July, stocks of both private and public sector banks rocketed on hopes of big-bang reforms at the Centre.

The optimism, however, fizzled out for PSU bank stocks since the Budget.

While private banks continued their rally and gained 24 per cent since the Budget, PSU banks lost about 9 per cent. The poor performance of PSU banks rubbed off on their stock prices.

Credit growth suffers Credit growth slowed down in tandem with the sluggish economy. Loan growth was just 10 per cent as of December 2014, tapering off from the already-low 14 per cent credit growth in 2013-14.

PSU banks have been the worst hit; their loan growth has fallen to about 8.5 per cent as of December 2014, from 16 per cent during the same period last year.

Private banks, on the other hand, continued to show resilience and grew their loan book by 17 per cent in the first nine months of 2014-15. A rising pile of bad loans and restructured assets has only added to the woes of PSU banks.

The increase in provisioning for bad loans has eroded their profitability. But for treasury income, the growth in their net profit (10 per cent) would have been much lower.

Stable margins and asset quality helped private banks deliver a healthy 17 per cent growth in profit in the April-December 2014 period. All eyes are on the upcoming budget.

A pro-growth Budget, stimulating investments in infrastructure and boosting consumer demand will benefit the banking sector.

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