Planning to invest in banks? MOST recommends 8 stks

Over the last 12 months, the regulators (RBI and NHB) have tightened their grip on the Indian financial sector through a spate of regulations. We enumerate some of the key game changing regulations proposed/issued by the RBI/NHB:

• Final guidelines on Basel III norms
• Discussion paper on dynamic provisioning framework
• De-regulation of savings deposit rate
• Final guidelines on securitization
• Multiple regulations for gold financiers
• Removal of prepayment penalty and uniform rates for old and new customers for housing loans, and
• Separate regulatory framework for microfinance institutions (MFIs).

• Banks: Earnings volatility to reduce but near-term return ratios may be impacted. Profitability of mid-cap PSU banks is at higher risk; private banks would be better placed due to higher capital buffer and strong risk management practices.
• Housing finance companies likely to remain largely unscathed due to their niche focus, robust risk management practices, and cash flow based lending.
• Gold financiers may have to reinvent business models; growth and return ratios to decline
• Micro finance Institutions will continue to grow at a slower pace as they transit into the new regulatory environment.

FIIs holding more than 30% in Indian cos

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