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L i q u i d i t y , c a p i t a l d e f ic i t a d d t o N P A w o e s …
A sharp rally of 26% was witnessed in the Bank Nifty from January 2012
post valuations reaching rock bottom levels at the end of CY11. However,
we remain cautious after the current run up. Crude prices and currency
movement may shape the course of inflation and monetary action. This
may determine the quantum of rate cuts, which is essential as only large
cuts may prove to be significant to revive the economy. Initial cut in repo
will lead to margin contraction as deposits will get re-priced with a lag.
Credit growth to reach 16%, NIM to remain sequentially flat
The RBI has pared down its credit growth target to 16%, which seems
achievable. However, tight liquidity is a major concern with average daily
borrowings climbing as high as | 1.2 trillion in the past four months. CD
rates have jumped to 11%+ levels. Deposit growth was lacklustre at
13.9%YoY on March 9. This has led RBI to cumulatively cut 125 bps of
CRR to infuse liquidity of | 80000 crore, which may support NIM positively.
NPA and restructured assets favouring distressed valuations
Industry GNPA is estimated to have surged 40% to ~| 1.3 trillion on a YTD
basis till Q3FY12 while restructured assets (RA) are expected to jump 50%
YoY to ~| 1.5 trillion by FY12E. Exposure to aviation, textile, power & steel
remain a grey area.
Basel III norms gear up capital requirement
We have analysed the capital requirement as per Basel III norms in a
couple of scenarios of aggressive and moderate growth, wherein banking
industry cumulatively requires capital of | 318213 crore and | 161826 by
FY17E, respectively. Government has budgeted | 15888 crore for FY13E.
V a l u a t i o n s
Valuations, in terms of one year forward P/ABV, are a notch above the
bottom levels seen in March 2009. Thus, one may use corrections to
accumulate banking stocks at lower levels for longer term horizons. We
prefer private banks like Yes Bank and HDFC Bank on account of earnings
visibility. In the PSU space, we prefer BoB and Dena Bank.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L i q u i d i t y , c a p i t a l d e f ic i t a d d t o N P A w o e s …
A sharp rally of 26% was witnessed in the Bank Nifty from January 2012
post valuations reaching rock bottom levels at the end of CY11. However,
we remain cautious after the current run up. Crude prices and currency
movement may shape the course of inflation and monetary action. This
may determine the quantum of rate cuts, which is essential as only large
cuts may prove to be significant to revive the economy. Initial cut in repo
will lead to margin contraction as deposits will get re-priced with a lag.
Credit growth to reach 16%, NIM to remain sequentially flat
The RBI has pared down its credit growth target to 16%, which seems
achievable. However, tight liquidity is a major concern with average daily
borrowings climbing as high as | 1.2 trillion in the past four months. CD
rates have jumped to 11%+ levels. Deposit growth was lacklustre at
13.9%YoY on March 9. This has led RBI to cumulatively cut 125 bps of
CRR to infuse liquidity of | 80000 crore, which may support NIM positively.
NPA and restructured assets favouring distressed valuations
Industry GNPA is estimated to have surged 40% to ~| 1.3 trillion on a YTD
basis till Q3FY12 while restructured assets (RA) are expected to jump 50%
YoY to ~| 1.5 trillion by FY12E. Exposure to aviation, textile, power & steel
remain a grey area.
Basel III norms gear up capital requirement
We have analysed the capital requirement as per Basel III norms in a
couple of scenarios of aggressive and moderate growth, wherein banking
industry cumulatively requires capital of | 318213 crore and | 161826 by
FY17E, respectively. Government has budgeted | 15888 crore for FY13E.
V a l u a t i o n s
Valuations, in terms of one year forward P/ABV, are a notch above the
bottom levels seen in March 2009. Thus, one may use corrections to
accumulate banking stocks at lower levels for longer term horizons. We
prefer private banks like Yes Bank and HDFC Bank on account of earnings
visibility. In the PSU space, we prefer BoB and Dena Bank.
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