Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PSU Banks: Time to use a finer brush
PSU banks are unfairly being painted by the same broad brush of
asset quality concerns
Asset quality concerns have dogged the Indian banking space over
the last four quarters with PSU banks being particularly affected as
stock valuations have come off sharply across the board. We view the
uniform punishment of PSU stocks to be unjustified, and a reflection
more of uncertainty, heightened by opaque asset quality and volatile
slippage reporting; than of real economic risk carried on the balance
sheet. PSU banks have in fact reported divergent asset quality signs
and there is a case to view their books to be qualitatively different.
Differentiating banks using an alternative approach to view asset
quality risk
Instead therefore of trying to take a call on the proven unpredictable
parameters of (1) the quantum of further asset quality deterioration i.e
slippages (2) the timing of their recognition and (3) the success rate of
recoveries and reductions – we assess PSU banks on the basis of their
ability to absorb further credit cost increases over and above our base
case estimates. The traditional approach of using absolute levels of
(expected) NPL’s to rank banks doesn’t assess their ability to price in
the asset risk and penalizes those who may have better risk adjusted
spreads and high profitability cushions.
Stock selection using scoring framework
Applying this approach to our PSU coverage banks, we assess and
score our coverage banks on 5 parameters that cover profitability
cushion and earnings capacity to absorb accelerated credit costs,
credit risk, asset quality risk from restructured assets and finally
valuation comfort.
Bank of Baroda, Punjab National bank and Allahabad Bank emerge as
clear winners in our scoring model, and are also our top picks in the
PSU space. ICICI Bank and DCB are our top picks in the private bank
space where the framework doesn’t lend well to differentiate amongst
the banks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PSU Banks: Time to use a finer brush
PSU banks are unfairly being painted by the same broad brush of
asset quality concerns
Asset quality concerns have dogged the Indian banking space over
the last four quarters with PSU banks being particularly affected as
stock valuations have come off sharply across the board. We view the
uniform punishment of PSU stocks to be unjustified, and a reflection
more of uncertainty, heightened by opaque asset quality and volatile
slippage reporting; than of real economic risk carried on the balance
sheet. PSU banks have in fact reported divergent asset quality signs
and there is a case to view their books to be qualitatively different.
Differentiating banks using an alternative approach to view asset
quality risk
Instead therefore of trying to take a call on the proven unpredictable
parameters of (1) the quantum of further asset quality deterioration i.e
slippages (2) the timing of their recognition and (3) the success rate of
recoveries and reductions – we assess PSU banks on the basis of their
ability to absorb further credit cost increases over and above our base
case estimates. The traditional approach of using absolute levels of
(expected) NPL’s to rank banks doesn’t assess their ability to price in
the asset risk and penalizes those who may have better risk adjusted
spreads and high profitability cushions.
Stock selection using scoring framework
Applying this approach to our PSU coverage banks, we assess and
score our coverage banks on 5 parameters that cover profitability
cushion and earnings capacity to absorb accelerated credit costs,
credit risk, asset quality risk from restructured assets and finally
valuation comfort.
Bank of Baroda, Punjab National bank and Allahabad Bank emerge as
clear winners in our scoring model, and are also our top picks in the
PSU space. ICICI Bank and DCB are our top picks in the private bank
space where the framework doesn’t lend well to differentiate amongst
the banks.
No comments:
Post a Comment