Associate of Doha Bank EQUITIES INDIA Banks Q1 Analysis of PSU and Private Sector Banks. Email : research@dbfsindia.com Phone : 0484-3060274 Is banking sector facing challenges? Bank Nifty for 1 year People normally consider investment in banking sector as the most secured investment. It is true that the banking sector stocks are good for long term investment. But if we analyse the Q1 earnings, we can see the asset quality is deteriorating whether it is a PSU or private sector banks. Non-Performing Assets (NPA) are one of the major concerns for indian banks nowadays. It affects the entire banking system and the economy as a whole. The high level of NPAs leads to diversion of banking resources towards resolution of this problems. This causes an opportunity loss for more productive use of resources. Banks are taking certain steps to reduce the NPA by giving it to ARC (Asset Reconstruction Company). NPA increase may force the banks to reduce the loan providing facilities and this will adversely affect the economy. The industries will suffer if they wont get credit facilities by banks and this affects their productivity and the entire economy as a whole.
Is payment banks, a threat to big banks? Recently RBI Governor Raghuram Rajan has announced the payment banking system and gave in principle nod to 11 entities for setting up payment banks. Payment banks collect small deposits from its customers and make payments, on their behalf, to other parties. They cannot lend but can accept deposits. Actually Payment banks is not a threat to big banks, he added that they will not compete but serve as feeders to their bigger, full-fledged banking peers. Along with that he also announced the possibility of issuing licences to smaller banks next month. This will ensures the growth of the banking sector. Capital infusion in PSU Banks by 2018-19 ensures the growth of banking sector... By 2018-19, the government will infuse Rs 70,000 crore into public sector banks, 42 per cent of these banks' overall estimated requirement of Rs 1,80,000 crore. While Rs 25,000 crore each will be infused this financial year and the next Fy 2016-17, Rs 10,000 crore each will be provided in 2017-18 and 2018-19. This year, the allocation would be in three tranches. About 40 per cent, or Rs 10,000 crore, would be given to banks that require support in the first phase; every bank will have a capital adequacy ratio of at least 7.5 per cent by 2015-16. Bank funds are stuck with large projects mainly due to the delays in land acquisition and clearances. The government's estimate of the required capital infusion of Rs 1,80,000. cr in four years is based on expected credit growth of 12 per cent this financial year and 12-15 per cent each in the next three. The estimates exclude the internal profit generation of banks. As of March 31 this year, Indian Overseas Bank, Union Bank of India, Dena Bank, IDBI Bank, Corporation Bank and Canara Bank had common tier-i ratios of less than 7.5, according to data sourced from India Ratings. In the second tranche, State Bank of India (SBI), Bank of Baroda (BoB), Bank of India, Punjab National Bank (PNB), Canara Bank and IDBI Bank would be given similar amounts.
Comparison of GNPA & NNPA of PSU Banks on Q-o-Q March Q4 2014-15 June Q1 2015-16 Source : Company data, DBFS Research Source : Company data, DBFS Research March Q4 2014-15 June Q1 2015-16
Comparison of GNPA & NNPA of Private Sector Banks on Q-o-Q Source : Company data, DBFS Research Source : Company data, DBFS Research
GNPA & NNPA of PSU Banks GNPA NNPA S.No Name of the Bank 15-Jun 15-Mar 14-Jun 15-Jun 15-Mar 14-Jun 1 State Bank of India 4.29 4.25 4.90 2.24 2.12 2.66 2 State Bank of Bikaner & Jaipur 4.45 4.14 3.60 2.36 2.54 2.14 3 State Bank of Mysore 4.21 4.00 5.13 2.10 2.16 2.72 4 State Bank of Travancore 4.03 3.37 4.69 2.47 2.04 2.93 5 Allahabad Bank 5.29 5.46 5.48 3.67 3.99 3.88 6 Andhra Bank 5.75 5.31 5.98 2.99 2.93 3.89 7 Bank of Baroda 4.13 3.72 3.11 2.07 1.89 1.58 8 Bank of India 6.80 5.39 3.28 4.11 3.36 2.14 9 Bank of Maharashtra 7.86 6.33 4.23 5.04 4.19 2.94 10 Canara Bank 3.98 3.89 2.67 2.74 2.65 2.03 11 Central Bank of India 6.70 6.09 6.15 4.00 3.61 3.62 12 Corporation Bank 5.43 4.81 3.96 3.55 3.08 2.71 13 Dena Bank 6.20 5.45 4.21 4.24 3.82 2.94 14 Indian Bank 4.65 4.40 4.01 2.62 2.50 2.48 15 Indian Overseas Bank 9.40 8.33 5.84 6.31 5.68 3.85 16 Oriental Bank of Commerce 5.85 5.18 4.33 3.76 3.34 3.11 17 Punjab and Sind Bank 5.17 4.76 5.22 3.65 3.55 3.87 18 Punjab National Bank 6.47 6.55 5.48 4.05 4.06 3.02 19 Syndicate Bank 3.72 3.13 2.97 2.36 1.90 1.88 20 UCO Bank 7.30 6.76 4.31 4.53 4.30 2.33 21 United Bank of India 9.57 9.49 10.49 6.30 6.22 7.23 22 Union Bank of India 5.53 4.96 4.27 3.08 2.71 2.46 23 Vijaya Bank 3.39 2.78 2.68 2.45 1.92 1.77 24 IDBI Bank 6.64 5.88 5.64 3.18 2.88 2.87
GNPA & NNPA of Private Sector Banks GNPA NNPA S.No Name of the Bank 15-Jun 15-Mar 14-Jun 15-Jun 15-Mar 14-Jun 1 City Union Bank 2.01 1.86 1.91 1.32 1.30 1.28 2 Dhanlaxmi Bank 8.45 7.00 7.17 4.22 3.29 4.62 3 Federal Bank 2.59 2.04 2.22 0.98 0.73 0.68 4 Jammu and Kashmir Bank 6.63 5.97 4.16 2.95 2.77 2.18 5 Karnataka Bank 3.26 2.95 3.43 2.05 1.98 2.37 6 Karur Vysya Bank 1.91 1.85 1.30 0.88 0.78 0.53 7 Lakshmi Vilas Bank 2.72 2.75 3.96 1.72 1.85 3.19 8 South Indian Bank 1.85 1.71 1.50 1.21 0.96 0.91 9 Axis Bank 1.38 1.34 1.34 0.48 0.44 0.44 10 Development Credit Bank 1.96 1.76 1.78 1.22 1.01 0.97 11 HDFC Bank 0.95 0.93 1.07 0.27 0.25 0.32 12 ICICI Bank 3.68 3.78 3.05 1.58 1.61 0.99 13 IndusInd Bank 0.79 0.81 1.11 0.31 0.31 0.33 14 Kotak Mahindra Bank 2.04 1.56 1.56 0.93 0.79 0.81 15 Yes Bank 0.46 0.41 0.33 0.13 0.12 0.07
Net Profit of PSU Banks S.No Name of the Bank 15-Jun 15-Mar 14-Jun Y-o-Y growth (%) Q-o-Q growth(%) 1 State Bank of India 4,853.60 4,912.87 4,587.71 5.80-1.21 2 State Bank of Bikaner & Jaipur 270.62 280.25 214.59 26.11-3.44 3 State Bank of Mysore 94.07 135.97 74.77 25.81-30.82 4 State Bank of Travancore 81.32 191.97 50.03 62.54-57.64 5 Allahabad Bank 146.86 202.63 112.72 30.29-27.52 6 Andhra Bank 202.52 185.24 107.00 89.27 9.33 7 Bank of Baroda 1,052.15 598.35 1,361.88-22.74 75.84 8 Bank of India 129.72-56.14 805.69-83.90-331.07 9 Bank of Maharashtra 59.44 112.72 117.82-49.55-47.27 10 Canara Bank 478.84 612.96 806.86-40.65-21.88 11 Central Bank of India 203.60 174.29 191.60 6.26 16.82 12 Corporation Bank 204.26 45.07 231.47-11.76 353.21 13 Dena Bank 15.16 55.82 81.52-81.40-72.84 14 Indian Bank 215.28 206.16 207.16 3.92 4.42 15 Indian Overseas Bank 14.76 35.50 271.72-94.57-58.42 16 Oriental Bank of Commerce 257.84-187.09 364.54-29.27-237.82 17 Punjab and Sind Bank 43.16-70.24 21.43 101.40-161.45 18 Punjab National Bank 720.71 306.56 1,405.12-48.71 135.10 19 Syndicate Bank 301.98 416.92 485.42-37.79-27.57 20 UCO Bank 256.70 209.28 521.40-50.77 22.66 21 United Bank of India 52.22 104.52 65.89-20.75-50.04 22 Union Bank of India 518.78 443.77 664.11-21.88 16.90 23 Vijaya Bank 142.59 96.8 161.46-11.69 47.30 24 IDBI Bank 135.18 545.94 104.81 28.98-75.24
Net Profit of Private Sector Banks S.No Name of the Bank 15-Jun 15-Mar 14-Jun Y-o-Y growth (%) Q-o-Q growth(%) 1 City Union Bank 111.56 99.08 99.49 12.13 12.60 2 Dhanlaxmi Bank -22.71-266.61 3.03-849.50-91.48 3 Federal Bank 141.39 280.53 220.23-35.80-49.60 4 Jammu and Kashmir Bank 158.76 101.61 130.05 22.08 56.24 5 Karnataka Bank 109.34 134.42 121.63-10.10-18.66 6 Karur Vysya Bank 134.58 137.83 122.07 10.25-2.36 7 Lakshmi Vilas Bank 40.26 40.07 28.16 42.97 0.47 8 South Indian Bank 65.29 16.32 126.65-48.45 300.06 9 Axis Bank 1,978.44 2,180.59 1,666.76 18.70-9.27 10 Development Credit Bank 46.87 62.95 44.64 5.00-25.54 11 HDFC Bank 2,695.72 2,806.91 2,233.04 20.72-3.96 12 ICICI Bank 2,976.16 2,922.00 2,655.30 12.08 1.85 13 IndusInd Bank 525.04 495.27 421.06 24.69 6.01 14 Kotak Mahindra Bank 519.66 929.35 696.70-25.41-44.08 15 Yes Bank 551.20 550.99 439.48 25.42 0.04 Conclusion: Banks Q1 2015-16 results are comparatively poor over March Q4 2014-15. This is mainly because of the increase in NPA level. RBI had cut repo rate by 25 basis points in June, which enhanced the banking sector for a certain period of time. There are certain banks, which are performing well, but the asset quality deterioration affected the banking sector as a whole.we expect a further rate cut by RBI in coming months only after analysing the monsoon, US Fed rate hike, Yuan devaluation. At this point we feel that liquidity remains steady, inflation is expected to come down by the end of FY15 and the RBI is in full control to manage any volatility. The improvement in asset quality could be seen on the recovery in macro economic environment & thereby revival in economic growth. Investors with a long term perspective can consider buying banking stocks at lower levels on every correction.
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