Underweight on banking space, says Subramaniam

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Banking crisis not yet over: Puru Saxena Sell banking stocks on higher levels: S Agrawal Sonthalia positive on banking space PSU banks look attractive: Vijay Nifty BSE | NSE 28/05/12 Are Mutual Funds betting on Nifty?

Vetri Subramaniam , Head-Equity Funds at Religare AEGON Asset Management is underweight on banking space.

Subramaniam told CNBC-TV18, "At the broad levels we have been underweight the entire banking financial space for a while and I had continued to maintain that position. I can see reason why perhaps some of the PSU banks in particular have done well this month largely to do with the fact that the long bond yield is cooled off and therefore at least on the reported net interest margins for the September quarter the numbers are going to look strong. But the thing that worries me about the whole banking financial sector is the fact that we have had four-years of credit growth at 30-40%, I think there are enough signs if you look around you that Non-Performing Assets (NPAs) are coming in much higher than what people had anticipated and when I look at the consensus numbers, when I look at the analysis of the profitability estimates for banks over the next two-years, I still find that the credit cost that have been accounted for are very muted. That will be a negative surprise for bank earnings over the next two-years, credit costs will be higher."
 
He further added, "It is not just a function of giving money around to people, it is also a function of the fact that people have conceived projects and borrowed money when rates were maybe 500-600 bps lower than current interest rates. So at the current interest rates is the projects still viable is it profitable can they afford to pay you back on schedules, I think these are tricky issues and only over time will you really start to record those credit costs."