Foreign institutional investors (FIIs) have cut their stakes in frontline public sector banks (PSBs) such as State Bank of India (SBI), Bank of Baroda, Punjab National Bank and Bank of India for the quarter ended September 2015, the shareholding pattern data shows.
Total 12 public sector banks, so far disclosed their September quarter shareholding pattern data, reveals that FIIs stake in nine banks declined by up to two percentage points, while in Central Bank of India, their holding remain unchanged. In Dena Bank and IDBI Bank they increased their stake during the recently concluded quarter.
In SBI, FIIs holding declined by 1.17 percentage points to 10.37% in September quarter from 11.54% in June quarter. They held 11.72% and 11.95% stake in SBI at the end of March 2015 and December 2014 quarter respectively.
FIIs stake in Bank of Baroda has reduced 1.5 per centage points to 12.04% in September quarter. They held 17.96% stake in the bank at the end of December 2014 quarter.
This is for the third straight quarter, the overseas investors have reduced their exposures in PSBs, due to poor financial performance on account of rising non-performing assets (NPA). In past two quarters - December 2014 and March 2015 -, the PSBs had reported an average 20% year-on-year declined in their standalone net profit.
A sharp sell-off by FIIs in PSBs saw the CNX PSU Bank index, a gauge of PSB banks, had declined by 25% compared to 1% fall in the CNX Nifty thus far in 2015.
Currently, expect SBI, the price to book value (P/BV) ratio of most banks is below one against three – SBI, Bank of Baroda and Punjab National Bank at the beginning of the current calendar year.
“State-owned banks are trading at around 30% discount to P/BV for the long period average (LPA). These banks highly levered to growth, continued structural reforms will drive re-rating. Sharp fall in valuations in 9MCY15 (January-September 2015) largely factors in the expected weak growth and asset quality performance in the quarter,” Alpesh Mehta and Dhaval Gada, analysts at Motilal Oswal said in a results preview note.
Ajit Agrawal, analyst at Systematix Institutional Equities said, “PSBs asset quality challenges are expected to continue with higher slippages from the restructured portfolio. In addition, a slower-than-expected upgradation and recovery would increase the stress asset formation”.
Meanwhile, analyst at Prabhudas Lilladher believes that the negatives of the state owned banks are already priced in the valuations at which they are trading.
“We expect slippages to remain high; however, 5/25 refinancing will help prevent further spike from existing levels. PSU banks have already provided for the transitional liability which was to be amortized over past five years and to that extent will see some respite on opex,” analyst said in a Q2 results preview.
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