Expect higher restructuring for PSUs: Prabhudas Lilladher

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Expect higher restructuring for PSUs: Prabhudas Lilladher

Prabhudas Lilladher has come out with its report on bank sector. The research firm maintains preference for ICICI Bank and Axis Bank over PSUs.

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Prabhudas Lilladher has come out with its report on bank sector. The research firm maintains preference for ICICI Bank and Axis Bank over PSUs.

"Banks, we see ~Rs 1,100bn (2.6% of system loans) of accretion over next 2 - 3 quarters to the restructured book and believe PSU banks will be impacted more compared to private banks. SBI should see lower restructuring relative to PSU peers, given lower airline/SEB/private power exposure. Most recent CDR cell data (Oct-Dec 2011) indicates ~Rs190bn addition to approved CDR cases and similar number of fresh CDR references. Including Air india (Rs 200bn), short term SEB restructuring (Rs 300bn) and fresh accretion, we expect ~Rs 1,110bn of accretion to the restructured book over next 6 months. The CDR cell believes that restructuring is on a rise and similar accretions could be expected over the next 2 quarters."

"Most large restructurings have been case-specific issues, but telecom and power equipments have seen large number of CDR referrals. Contrary to market expectations, not many textile cases have been registered with the CDR cell. Also, power producers have not been referred, given long gestation NPA recognition, especially under-construction projects. However, some large road operators could see restructuring over the next 1 - 2 quarters. Though NPV sacrifices vary with every project, bank sacrifices have on an average been 10 - 20%, with NPV sacrifice on bank's GTL exposure expected to be ~10-15%. There have been few accounts where banks have increased interest rates to compensate for NPV sacrifice from rescheduling; however, such cases are limited."

"We believe, given high ratio of accepted cases (~90% of referred cases), stress from the restructured portfolio will extend beyond NPV hits. Our sensitivity to stress sectors indicates ~15% hit for ICICI/Axis and ~20- 30% hit on PSU's net worth and adjusted valuations screen better for ICICI/Axis v/s PSU banks. We find valuations reasonable for the sector, but given higher restructuring expected for PSUs, we maintain preference for ICICI/Axis over PSUs. Risks from restructuring seem limited for SBI, given lower exposure to Airlines/SEB/Private power v/s peers," says Prabhudas Lilladher research report.

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To read the full report click on the attachment