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Management meeting update
Our recent meeting with management indicates that loan growth may
slowdown due to lower demand for infrastructure loans and loss of some
market share to banks with lower cost of deposits. CASA growth is under
pressure, but recent hike in lending rates and management’s focus on
profitable lending will help to defend margins. Asset quality pressure may
continue partly due to transition to automated NPL recognition system;
focus is on recoveries. We expect 17% Cagr in loans, but earning growth
may be lower due to rise in credit costs. Maintain U-PF.
Growth to slow
Growth is likely to slowdown due to slower offtake on investment linked loans
and lower demand from SME segments. Bank has turned cautious on the
power sector loans– both to SEBs and private sector. While working capital
demand is holding-up, it may loose some market share to banks with higher
CASA ratio that helps to offer lower interest rate on loans. During FY12,
management expects loans to grow by ~18%.
CASA ratio and margins may improve
While high interest rates are putting pressure on CASA growth, bank may see
some improvement in CASA ratio as it is focussing on improving deposit mix
through slower loan growth; it is reducing focus on wholesale term deposits.
Recent hike in lending rates and focus on profitable lending may also help to
improve margins and management expects NIMs in FY12 to be near 3.2%.
Asset quality pressure may continue
Over past two years, bank has seen higher slippages with delinquency ratio of
2.5% in FY11. Slippages may be high in coming quarters also partly due to
transition to automated NPL recognition on the balance ~10% of loans that is
mostly in the small ticket agricultural segment. Bank is also focusing on
recoveries and expects faster recoveries in small-ticket loans. Power sector
forms 7% of fund-based exposures and bank is not seeing signs of stress
there; nearly 70% of power sector exposure is to SEBs.
Maintain U-PF
Over FY11-14, we expect bank to report 17% Cagr in loans, but profit growth
would be lower at 14% due to pressure on margins and higher credit costs.
With Tier I CAR of 8.8%, bank may need to raise fresh capital over next 12
months- part of this may come through preferential issue to government. We
maintain U-PF with target price of Rs230 based on 1.1x FY13CL adjusted PB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management meeting update
Our recent meeting with management indicates that loan growth may
slowdown due to lower demand for infrastructure loans and loss of some
market share to banks with lower cost of deposits. CASA growth is under
pressure, but recent hike in lending rates and management’s focus on
profitable lending will help to defend margins. Asset quality pressure may
continue partly due to transition to automated NPL recognition system;
focus is on recoveries. We expect 17% Cagr in loans, but earning growth
may be lower due to rise in credit costs. Maintain U-PF.
Growth to slow
Growth is likely to slowdown due to slower offtake on investment linked loans
and lower demand from SME segments. Bank has turned cautious on the
power sector loans– both to SEBs and private sector. While working capital
demand is holding-up, it may loose some market share to banks with higher
CASA ratio that helps to offer lower interest rate on loans. During FY12,
management expects loans to grow by ~18%.
CASA ratio and margins may improve
While high interest rates are putting pressure on CASA growth, bank may see
some improvement in CASA ratio as it is focussing on improving deposit mix
through slower loan growth; it is reducing focus on wholesale term deposits.
Recent hike in lending rates and focus on profitable lending may also help to
improve margins and management expects NIMs in FY12 to be near 3.2%.
Asset quality pressure may continue
Over past two years, bank has seen higher slippages with delinquency ratio of
2.5% in FY11. Slippages may be high in coming quarters also partly due to
transition to automated NPL recognition on the balance ~10% of loans that is
mostly in the small ticket agricultural segment. Bank is also focusing on
recoveries and expects faster recoveries in small-ticket loans. Power sector
forms 7% of fund-based exposures and bank is not seeing signs of stress
there; nearly 70% of power sector exposure is to SEBs.
Maintain U-PF
Over FY11-14, we expect bank to report 17% Cagr in loans, but profit growth
would be lower at 14% due to pressure on margins and higher credit costs.
With Tier I CAR of 8.8%, bank may need to raise fresh capital over next 12
months- part of this may come through preferential issue to government. We
maintain U-PF with target price of Rs230 based on 1.1x FY13CL adjusted PB.
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