Thursday, May 14, 2009

[Investors Please Listen] Banking Sector Update ; Pressure points come to fore

Banking

Pressure points come to fore 


The Q4FY09 results for the banking sector reflected most of the pressure points for the PSU banks that we highlighted in our earlier note "Treading on Risky Path" dated February 20, 2009. (1) The NIMs were under pressure during the quarter as they dipped by 45bps qoq and 5bps yoy, (2) the profits were largely driven by treasury income even as they didn't contribute more than 5% to the adjusted book values of the PSU banks and (3) the restructured assets remained significantly high at 3%+ for many banks reflecting pressure on asset quality.

With lower yielding investments on book and further repricing of advances, NIMs will continue to remain under pressure. We expect the bond yields to remain in 6.5-7.0% for FY10 thereby not helping much with treasury gains. The NPAs have shown rise during FY09 and if even 25% of the restructured assets turn NPA, then many of the banks may find it difficult to grow the balance sheet in FY11 without diluting equity.  We remain underweight on the sector. Amongst PSU banks Bank of Baroda remains top pick. Amongst private sector, our top pick will be HDFC Bank followed by ICICI Bank.


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The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
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