India Morning Report: State Bank gets ready to report with PNB carnage still fresh

English: Wordmark of Tata Power
English: Wordmark of Tata Power (Photo credit: Wikipedia)

 

PNB ofcourse claimed to stabilise NPAs again but with INR 50 Bln more in restructured assets that are  now INR335 Bln on the Books, the bank has lost a lot of investor stars in this quarter. However, the bank seems to have acted as per strategy to release larger NPLs ramping up provisioning and so even though Profits were lower, the NIMs are 3.47% an industry best and NPAs at 3%  might yet be excusable keeping the bank firmly in our buy list aheadof Bank of Baroda. PNB bulk deposits are down a huge 2/3rds  at INR 220 Bln from more Than INR 900 Bln

 

State Bank will report much lower than expectations however as market expectations onthe scrip have been unnecessarily optimistic, its being in the buy lists always a function of its special charter and its exposure to SME always a much more risky diet for investors than even BOB, BOI and NB but the bank is the biggest in India and has been trying with great returns for its size in the retail lending markets, not in NRI deposits

 

PNB will continue trading higher provisions for lower PAT as the coverage is still 55%, lower than others in India and the only risk factor is its high reliance on the restructured book which for PSU banks has turned out to be  window dressing game, skeletons of which cupboard may be expected to be found industry wide in a couple of yearswhen they are reclassified a s NPA instead of standard assets. PNB may perform better at that time when actual results are available  and its Treasury revenues ( Gross of INR 339 Bln) remain best in class

 

Currency and Bond markets are still twirled up in a tizzy and the Dollar Index at 81 levels may continue to rise though confirmation of continuing EM inflows will change the sentiment positively. Indices flagged off below 6000 levels and Sensex may well see sub 20k levels keeping short itches alive this week after a seeming end of the line earlier in the week as trade data was seen in the right light. 11 more sessions in this series which hidden to most, has even seen Ashwini Gujral and the Institutions change their staple trades, IDFC and YES back in lay as mainstream sentiment carriers

 

I for one consider the State Bank to be fair valued at more around 1400 levels, a purveyor of bad asset quality for whicht he rub off on PNB and BOI is almost unfair and that the State Bank can be punished isolatedly instead of crowding each and every constituent of the Banknifty

 

Food inflation should e allowed to continue at 10-12% levels the CPI component having come in at 12.56% yesterday. The IIP at 2% was well below what could be and expectations cannot be lowered to where the series presupposes to lie in the coming election months. Tata Power has irrationally picked up its pair with RPOWR and Reliance Inra again, turning south after Reliance boosted its results fr the companies earlier this week

 

 

 

Bank Results season: Its not the asset quality trails but the change in NiMs

Banks across the board got a full reprieve in Q1 (Fy 2014) as they report much better NIMs, ING improving to 3.56% up almost 10% from previous year scores because of the lower interest rates by the Central Bank. Apart from the old hat CEntral bank rebuttal to banks at this stage for refusing to  pss along the rate cuts, this strategy is not really creating any abnormal returns but would have unsqueezed banks bt for the oil triage getting the Economy back into a high rate orbit.

Also the concerns about asset quality are probably unfounded as they just try to close up books on all doubtful assets and this quarter’s anomalous jump of 50% at HDFC Bank and more at ING vysya is likely just a result of that

Retail Banks have obviously been running higher NIMS like 4.4% at HDfc bank and cllose to 4% at Axis, but they also hide a lot of retail pain in their bigger balance sheets that can be shown by segmenting the cost of funding also appropriately for the retail book

 

Fitch Banking Report on Asset quality

Cyclical downturns in Textiles, Steel and Real Estate continue adding to asset quality concerns . Power and Infrastructure company concerns could continue and balance sheet rported asstes as per new PSE systemisation to 3.5% and Total NPAs coul d be as high as 10% as per Fitch.

Going forward Fitch reports on better days in light of the growth returning to the economy and seets position would not worsen for the larger banks esp not in agricultural sector but others where stressed assets have already fructified.

 

 

Up ↑

%d bloggers like this: