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May 28, 2012, 02.04 PM IST
C Jayaram, joint managing director of Kotak Mahindra Bank is positive on private sector banks. “Between the PSU banks and the private sector banks, there is a question of valuation versus comfort. At this point of time, the dice seems to be rolling in favour of the private banks."
Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Ekta Batra. Also watch the accompanying video.
Q: What is the kind of response that you are seeing at the conference? Are people very despondent with this situation that we are seeing across the globe or is there some talk of now the market putting a base for itself and perhaps some amount of money being put to work in this market?
A: At one level, obviously there is a lot of gloom about what is happening globally and domestically. I think a lot of people believe that, at current valuations or roughly thereabouts, most of the fundamentals have got priced in. If you actually started to get a few triggers, you could see a little bit of flows coming in from global investors.
Q: The focus on the conference is BFSI. What exactly are your recommendations with regards to the banking space? We have a bit of a disparate earnings season. We had SBI which really surprised the street. What is your call on the banking space?
A: Currently, we are positive on the banking space because the belief is that many of the macros in the system have probably bottomed out whether you are talking about fiscal deficit, current account deficit, currency etc. Some of these start to look a little better. I think the banking sector will probably be one of those which will get immediate positive.
On the back of that and reasonably good set of credit history, I think most of the banks have shown far lower non-performing loans (NPLs) then what market had projected for a period of time. The banking sector seems to be in a reasonable health.
Between the PSU banks and the private sector banks, there is a question of valuation versus comfort. At this point of time, the dice seems to be rolling in favour of the private banks. Since most investors are not looking to take great ways, they find greater comfort in the private banks.
Q: What about the asset quality issues? For SBI, particularly it was cleaning up of the balance sheet etc that helped this time around. But for whole host of other banks asset quality issues are not out of the way just yet. Do you think we will have to see more pain on that account for the banking space?
A: At some level, it is a function of the environment. If the environment deteriorates or gets worse then clearly some of what you are saying will play out in terms of asset quality. But if over the next three-six months we start to see some improvement in this, there is a belief that some of this may have bottomed out then you will start to see fresh flows come in, whether it is in the form of equity or debt into some of these companies. And then I think the asset quality will start working itself out of the system.
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