Healthy bank numbers not sustainable: Nirmal Bang Equities

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Healthy bank numbers not sustainable: Nirmal Bang Equities

Even though the banking industry positively surprised the market this time round, Hemindra Hazari of Nirmal Bang Institutional Equities tells CNBC-TV18 that the situation is likely to worsen going forward.

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ News and Notices about ICICI Bank See interviews with ICICI Bank Management See what other Experts & Brokerages are saying about ICICI Bank See previous Results of ICICI Bank

Even though the banking industry positively surprised the market this time round, Hemindra Hazari of Nirmal Bang Institutional Equities tells CNBC-TV18 that the situation is likely to worsen going forward.

"Going forward, the banking numbers could worsen because the economy is slowing down," he said adding that the main problem will be the non-performing assets.

For the upcoming quarters, Hazari expects to see a very large increase in bad debt provisioning as well as NPAs. "If banks are really not showing that, I would be a concerned," he said.

Below is an edited transcript of his interview with Sonia Shenoy. Also watch the accompanying video.

Q: What is your assessment of all the numbers and which ones have been the best and the worst of the lot?

A: Looking at the banking numbers, I think they have positively surprised the market because they have been reasonably decent. But on the other hand, I would believe that going forward the banking numbers could worsen because the economy is slowing down and the main problem will be the non-performing assets (NPAs). You are already seeing a very sharp growth in NPAs and bad debt provision in some banks and I think that will accelerate going forward. Therefore, I believe this kind of strong numbers that you are seeing today may not be sustainable going forward.

Q: What did you make of the biggest one of the lot ICICI Bank ? Where are you positioned on the stock now, because a whole host of the private sector banks have not disappointed really?

A: I think that to me is a concern. The economy is slowing down, there is a slow down in the results, margin pressure amongst corporates and yet we are finding that large banks are continuing to show supposedly healthy profit growth.

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Now if you look at some of these banks, you are seeing 7-8% operating profit growth and then you are seeing a 20% net profit growth. Some banks even had a fall in bad debt provisions. Now given the economic climate we are in, I would expect large banks, if not the entire banking sector really to show very large increase in bad debt provisioning as well as NPAs. Now for those banks which are really not showing that, I would be a concerned.

Q: What about the public sector units in India? What did you make of the numbers and would you be concerned with this lot as well?

A: I would be concerned with the general banking industry really because we are negative on the economy and therefore we are negative on the banking sector. So if you look at these results, they would appear to be very healthy and strong. But if you look in the context of the economic environment we are operating in, I would be really concerned about these type of numbers. I think going forward you are going to see an increase in NPAs.

Mind you we are not even talking about infrastructure loans which are a major concern. The NPAs that you are probably seeing today are really from the small and mid-cap companies and I expect that to accelerate. So going forward although you are seeing supposedly a healthy set of numbers coming out today, in my view they are not sustainable.