Goldman cuts PSBs’ earnings forecasts

Notwithstanding the cuts, Goldman still sees an upside for public-sector bank shareholders with its new price targets.

MUMBAI: Following the Rs 11,400- crore Punjab National Bank (PNB) fraud, Goldman Sachs Group Inc revised its earnings forecasts downwards for three state-run lenders namely State Bank of India (SBI), PNB and Bank of Baroda (BoB).

While earnings estimate for SBI was lowered by a mere one per cent, Bank of Baroda and PNB saw an erosion of 12 and 30 per cent, respectively. The research firms also lowered its estimates for 2019 and 2020 by similar percentage for all three banks under review.

According to Rahul Jain, analyst, the revised earnings forecast is after taking into consideration the first tranche of the government’s Rs 2.11 lakh crore recapitalisation plan. Potential risk aversion and a greater focus on operational controls after the fraud may hamper growth in the near term, Goldman noted.

“We lower our EPS (earnings per share estimates for SBI/BoB largely on the back of share dilution. On PNB, we see a larger EPS decline as we lower growth after baking in the full impact of the fraud-related liability,” it added.

Notwithstanding the cuts, Goldman still sees an upside for public-sector bank shareholders with its new price targets offering an upside of between 12 and 29 per cent, according to the note.

The $1.77 billion fraud that surfaced days after India’s largest lender SBI posted a surprise loss led to a sharp 14 per cent decline in NSE’s banking stocks index so far this month and the trend is indicative that it could erase the sharp rally spurred by the government’s recap plan announced last year.

According to a Reuters report, Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies allegedly involved in the PNB fraud, as pegged by the I-T department.

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