Friday, January 15, 2016

Continued selling drags 17 public sector banks to fresh 52-week low levels

Stock prices of most public sector banks do not seem to find any bottom in the medium term. On Thursday, 17 public sector banks hit fresh 52-week lows. Their combined market capitalisation at Rs.1.2 lakh crore is almost the same as Kotak Mahindra Bank, which is India’s fourth-largest private sector bank. But the 17 banks’ loan book size is 28 times the latter.

The 17 PSU banks are: PNB, Bank of Baroda, Bank of India, Canara Bank, Oriental Bank of Commerce, UCO bank, Union Bank of India, Dena Bank, Bank of Maharashtra, Syndicate Bank, Allahabad Bank, Andhra Bank, Karnataka Bank, IOB, Vijaya Bank, Indian Bank and J&K Bank.

At attractive valuation, but…

Analysts say this PSU pack, though trading at an attractive valuation of 0.5-0.7 times price to one-year forward book value, will continue to face selling pressure on account of pressure on profitability as they clean up their books.

The Reserve Bank of India has identified 150 truant corporate borrowers and set March 31, 2017, as deadline for cleaning up balance sheets. RBI has also mandated banks to set aside funds not only on loans that are not repaid on time but also for those that have shown signs of weakness on others’ books.

‘Selling pressure to continue’

“Things are looking much gloomier for PSU banks. The selling pressure on the stocks is expected to continue,” said an analyst at Reliance Securities.

On the other hand, among the private backs, retail-focussed players, such as HDFC Bank, YES Bank, Kotak Mahindra Bank and IndusInd Bank, are among the preferred stocks. SBI is the best PSU bank now due to its high capital adequacy ratio of 12.1 per cent and comparatively less stress from the NPA front. Gross NPA at SBI declined 6.4 per cent year-on-year at Rs.56,834 crore in the first half of FY16 and was a tad above the FY15 figure of Rs.56,725 crore.

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