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India Equity Research Reports, IPO and Stock News
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India Banks
London conference takeaways – increased visibility for
asset quality trends
Power sector issues need time for resolution, no near-term
solution clearly visible – but problems aren’t irreversible
While slippages to continue in slow environment, formation
rate likely to slow and recoveries likely to improve
Slowing growth but higher NIMs in 2H12 likely to be viewed
as positive catalysts, along with rate pause and incremental
asset-quality improvement trends
London Infra Day: CEOs and top management of SBI, BOI, IDBI, IDFC, and PFC,
along with other corporate chiefs and government representatives, presented at our event.
Key messages – Power sector: a) Uncertainty about when coal linkage problems would
be resolved, b) may see restructuring increase to buy time for this and to raise power
tariffs, c) ways to resolve problems for projects under construction: either Coal India takes
a hit on imported coal cost, or tariffs increased (legal challenges possible), or government
bears a subsidy, d) free/subsidised power may end as availability concerns dominate cost,
e) SEB problems starting to get resolved, although a long way from completion; workthroughs
possible for some SEBs but no more concessions likely for them, and f) sluggish
funding to power sector until problems get resolved.
Key messages – Banking sector: a) NPLs likely to continue to increase albeit at slower
pace, driven by slower rate of slippages and better recoveries in 2H, b) sources of
slippages mainly exporting SMEs (textiles, jewellery, and leather) and also agri (harvest
delayed to end-Nov), c) NIMs trending higher in 2H, including from overseas trade
finance business, d) sub-20% loan growth this year (large PSUs), and e) more than 160bps
increment to SBI’s CAR from various measures in FY12.
Conclusion: Is the worst behind us? With guidance for improving asset quality, higher
margins, and hopes for a rate pause, current valuations appear promising for an entry
point, particularly in private bank stocks. Our preferred plays include high wholesalefunded
entities with relatively better earnings clarity and attractive valuations: YES,
LICHF, and ICBK.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks
London conference takeaways – increased visibility for
asset quality trends
Power sector issues need time for resolution, no near-term
solution clearly visible – but problems aren’t irreversible
While slippages to continue in slow environment, formation
rate likely to slow and recoveries likely to improve
Slowing growth but higher NIMs in 2H12 likely to be viewed
as positive catalysts, along with rate pause and incremental
asset-quality improvement trends
London Infra Day: CEOs and top management of SBI, BOI, IDBI, IDFC, and PFC,
along with other corporate chiefs and government representatives, presented at our event.
Key messages – Power sector: a) Uncertainty about when coal linkage problems would
be resolved, b) may see restructuring increase to buy time for this and to raise power
tariffs, c) ways to resolve problems for projects under construction: either Coal India takes
a hit on imported coal cost, or tariffs increased (legal challenges possible), or government
bears a subsidy, d) free/subsidised power may end as availability concerns dominate cost,
e) SEB problems starting to get resolved, although a long way from completion; workthroughs
possible for some SEBs but no more concessions likely for them, and f) sluggish
funding to power sector until problems get resolved.
Key messages – Banking sector: a) NPLs likely to continue to increase albeit at slower
pace, driven by slower rate of slippages and better recoveries in 2H, b) sources of
slippages mainly exporting SMEs (textiles, jewellery, and leather) and also agri (harvest
delayed to end-Nov), c) NIMs trending higher in 2H, including from overseas trade
finance business, d) sub-20% loan growth this year (large PSUs), and e) more than 160bps
increment to SBI’s CAR from various measures in FY12.
Conclusion: Is the worst behind us? With guidance for improving asset quality, higher
margins, and hopes for a rate pause, current valuations appear promising for an entry
point, particularly in private bank stocks. Our preferred plays include high wholesalefunded
entities with relatively better earnings clarity and attractive valuations: YES,
LICHF, and ICBK.
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