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R o a d t o r e c o v e r y : a n e l o n g a t e d o n e …
It has been over a year since banks have remained under pressure battling
out monetary tightening and subsequent credit slowdown, asset quality
deterioration and RBI endeavours like freeing up of savings rate. Credit
growth is sluggish at 7.5% YTD. We think it may fall below RBI’s targeted
18% to 16% for FY12E. The Bank Nifty has corrected by 25% YTD as
against a 17% slide in the Nifty. However, as valuation multiples have
already contracted for the sector, the correction may not be as steep as
has been witnessed over the past one year. In the absence of major
positive triggers, we believe the sector will remain in a consolidation phase
from here on. Also, banks with higher exposure to power (SEBs), iron &
steel and textile like SBI, PNB, IOB, OBC and Dena Bank would continue to
take a beating.
We have analysed the asset liability mismatch (ALM) in the system. Even
though the ALM mismatch has been present for long, financing of long
term assets by short-term liabilities has been aggravated due to increased
infrastructure lending in the last three years. According to RBI analysis
(Trend & Progress report 2011) almost 23% of short-term liabilities were
used to finance almost 20% of long-term assets in the banking sector.
We expect slippages to remain high although lower compared to H1FY12
as the migration exercise stands completed. With stress already visible in
SME & agri portfolio, the next trigger may be from retail but the quantum
would be relatively smaller. Increase in restructured assets would defer the
near term material impact on P&L. According to our analysis of coverage
stocks, we expect an impact of ~8.2% for PSB and 2% for private bank
PBT if slippages from restructured assets rise to 25% in FY12E.
We believe a pause in interest rate hike and subsequent reversal seen in
early H1FY13E will provide some relief to the sector. We prefer banks with
stable asset quality, resilient NIM and well diversified exposure. Hence, we
are positive on banks like HDFC Bank and Yes Bank in the private space
and Bank of Baroda among PSBs from a long-term perspective.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
R o a d t o r e c o v e r y : a n e l o n g a t e d o n e …
It has been over a year since banks have remained under pressure battling
out monetary tightening and subsequent credit slowdown, asset quality
deterioration and RBI endeavours like freeing up of savings rate. Credit
growth is sluggish at 7.5% YTD. We think it may fall below RBI’s targeted
18% to 16% for FY12E. The Bank Nifty has corrected by 25% YTD as
against a 17% slide in the Nifty. However, as valuation multiples have
already contracted for the sector, the correction may not be as steep as
has been witnessed over the past one year. In the absence of major
positive triggers, we believe the sector will remain in a consolidation phase
from here on. Also, banks with higher exposure to power (SEBs), iron &
steel and textile like SBI, PNB, IOB, OBC and Dena Bank would continue to
take a beating.
We have analysed the asset liability mismatch (ALM) in the system. Even
though the ALM mismatch has been present for long, financing of long
term assets by short-term liabilities has been aggravated due to increased
infrastructure lending in the last three years. According to RBI analysis
(Trend & Progress report 2011) almost 23% of short-term liabilities were
used to finance almost 20% of long-term assets in the banking sector.
We expect slippages to remain high although lower compared to H1FY12
as the migration exercise stands completed. With stress already visible in
SME & agri portfolio, the next trigger may be from retail but the quantum
would be relatively smaller. Increase in restructured assets would defer the
near term material impact on P&L. According to our analysis of coverage
stocks, we expect an impact of ~8.2% for PSB and 2% for private bank
PBT if slippages from restructured assets rise to 25% in FY12E.
We believe a pause in interest rate hike and subsequent reversal seen in
early H1FY13E will provide some relief to the sector. We prefer banks with
stable asset quality, resilient NIM and well diversified exposure. Hence, we
are positive on banks like HDFC Bank and Yes Bank in the private space
and Bank of Baroda among PSBs from a long-term perspective.
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