The banking sector in India was already facing issues with regard to high non-perforing assets (NPAs). And, with higher scrutiny going ahead, the credit offtake could slow down and impact near-term growth for corporates. However, the results for the past few quarters have been encouraging for most sectors, so we believe the earnings would not be as bad as feared. Since banks have a significant weight on overall indices, a correction in banking stocks has put a pressure on markets.
Should investors sell PSU bank stocks, keeping in mind the PNB scam? Or is it a good time for value buying?
PSU banking stocks have seen a huge correction in the past few weeks, so I won’t suggest selling at the current levels. If one can, one should selectively accumulate, but we must also admit that the recovery could take time. So, the well-managed mid-sized banks could be value buy at this level. We can’t ignore the presence of PSU banks in India and I feel the reaction has been overdone and value buyers can venture in and take positions.
How do you view private banks? Are YES Bank, Axis Bank and ICICI Bank a good buy?
Even private banks had their part of the pain, but they have limited presence in the troubled sector. Growth for the private sector could also taper down a bit in the quarters to come. Within private banks, we feel ICICI Bank is well positioned and should be bought.
There has been a talk of consolidation in the PSU banking space. Can this become a reality? How soon do you expect this to happen and how would markets react to the development?
A consolidation would eventually happen, but it might take time. Before the process of consolidation, I feel the problem with regard to asset quality needs to be fixed, else there would be little benefit out of any consolidation. How the market will react depends on which bank gets merged with which one, a set of two weak banks merging doesn’t solve the problem.
Do you think the government will rejig its capital infusion plan as regards PSU Banks? Why or why not?
I think the total capital infusion process in the form of recapitalisation bonds was intended to strengthen the balance sheet of banks, so that they could raise additional funds from markets, take adequate provisions and clear the NPA issue. While additional capital infusion from the government at the current level looks unlikely, a few large and mid-sized banks have recently tapped the market and could approach the market again for funding. It should also be noted that a few PSU banks have non-core assets that can used to raised funds and meet capital requirements to some extent. Actions on this front are visible as well.