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Second India financials road trip takeaways: Slower but still steady
Acknowledging slowdown, cautiously optimistic on asset quality
We recently hosted an Indian financials tour where investors had extensive
interaction with 30 companies in 4 cities, by Fin. Ministry (MoF), Planning
commission, and the Reserve Bank of India (RBI). Key takeaways:
1. The RBI remains hawkish, controlling inflation remains a priority; willing
to accept some sacrifice in growth to bring inflation under acceptable levels.
RBI has increased rates by 25bps in its recent policy meeting; GS ECS’s view
that the bar for the RBI to hike again is pretty high and they expect a 100bps
correction in FY13.
2. Banks indicated muted credit growth, but robust deposits growth with
a moderating CASA. Credit demand from green-field and new projects have
slowed considerably. Select companies are still seeing healthy growth in
retail loans even as they gain market share; mortgage loans weaker in NCR
& Mumbai; but growth is still strong in the South.
3. Most banks comfortable on margin, expect a narrow range going
forward, likely higher in 2H if rates stabilize. We believe this could decline
again initially as rates reverse.
4. No negative surprises from asset quality so far, but banks sounded
cautious on asset qulity though any increase should be manageable. NPLs
in retail are at an all-time low for select private banks. PSU banks’ have
largely moved to system based NPL recognition leading to an NPL up-tick
over the last 3 qtrs. Some more pain likely in the form of higher provisions
and lower margins, as banks complete this process by Sept 2011 (including
less than Rs1m portfolio). Concerns on SEB’s financing and fuel supply
issues in the power sector remain, but no defaults/restructuring in the
system so far; however IBA asked SEB’s to periodically review the tariffs to
be able to receive further credit from banks.
5. PSU banks put emphasis on improving HR practices; recruitment necessary
to meet the shortfall in manpower in coming years. MoF indicated possible
implementation of Khandelwal Committee recommendations.
GS View. While asset quality pressures loom large, these would be
manageable, and credit growth could moderate to 17%-18% from the 22%
reported in FY11, but not likely to collapse. However, the sharp correction in
stock prices reflects over-pessimism and does provide an entry point for longterm investors. We remain positive on private banks and reiterate our Buy rating
on IndusInd Bank (on CL), Yes Bank, ICICI Bank, Axis Bank; PSUs: BoB and PNB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Second India financials road trip takeaways: Slower but still steady
Acknowledging slowdown, cautiously optimistic on asset quality
We recently hosted an Indian financials tour where investors had extensive
interaction with 30 companies in 4 cities, by Fin. Ministry (MoF), Planning
commission, and the Reserve Bank of India (RBI). Key takeaways:
1. The RBI remains hawkish, controlling inflation remains a priority; willing
to accept some sacrifice in growth to bring inflation under acceptable levels.
RBI has increased rates by 25bps in its recent policy meeting; GS ECS’s view
that the bar for the RBI to hike again is pretty high and they expect a 100bps
correction in FY13.
2. Banks indicated muted credit growth, but robust deposits growth with
a moderating CASA. Credit demand from green-field and new projects have
slowed considerably. Select companies are still seeing healthy growth in
retail loans even as they gain market share; mortgage loans weaker in NCR
& Mumbai; but growth is still strong in the South.
3. Most banks comfortable on margin, expect a narrow range going
forward, likely higher in 2H if rates stabilize. We believe this could decline
again initially as rates reverse.
4. No negative surprises from asset quality so far, but banks sounded
cautious on asset qulity though any increase should be manageable. NPLs
in retail are at an all-time low for select private banks. PSU banks’ have
largely moved to system based NPL recognition leading to an NPL up-tick
over the last 3 qtrs. Some more pain likely in the form of higher provisions
and lower margins, as banks complete this process by Sept 2011 (including
less than Rs1m portfolio). Concerns on SEB’s financing and fuel supply
issues in the power sector remain, but no defaults/restructuring in the
system so far; however IBA asked SEB’s to periodically review the tariffs to
be able to receive further credit from banks.
5. PSU banks put emphasis on improving HR practices; recruitment necessary
to meet the shortfall in manpower in coming years. MoF indicated possible
implementation of Khandelwal Committee recommendations.
GS View. While asset quality pressures loom large, these would be
manageable, and credit growth could moderate to 17%-18% from the 22%
reported in FY11, but not likely to collapse. However, the sharp correction in
stock prices reflects over-pessimism and does provide an entry point for longterm investors. We remain positive on private banks and reiterate our Buy rating
on IndusInd Bank (on CL), Yes Bank, ICICI Bank, Axis Bank; PSUs: BoB and PNB.
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