SBI to react positively if Q1 slippage nears Rs 3000cr: UBS

Vishal Goyal, executive director at UBS Securities is hopeful that bank’s would not disappoint on the asset quality front in this quarter. He expects fresh restructuring in banks to be lower than last quarter.

Largest public sector lender, State Bank of India (SBI) is expected to meet expectations because of the change in non-performing loans (NPL) slippage guidance, he told CNBC-TV18. "They are looking for Rs 3,000-4,000 crore kind of net slippage number for this quarter. If they meet the lower end of slippage then people would be happy, but if they touch Rs 40 billion of net slippage then there would be some correction." Meanwhile, Goyal continues to remains bullish on Federal Bank among the midcap banking stocks. Below is the edited transcript of Goyal’s interview with CNBC-TV18. Also watch the accompanying video. Q: What is your overall expectation, do you expect this quarter to be one marked by higher slippages or do you think on the asset quality front banks will not do too badly? A: On asset quality banks would not do too badly. In our view NPL slippage plus restructuring number, the fresh slippage and fresh restructuring would be lower than last quarter. So in that term it looks stable. Q: What do you expect to hear and see on State Bank of India (SBI)? A:  SBI delivered good set of numbers last quarter so expectations from them are slightly high.  They would most likely meet the expectations because they have changed their guidance on non-performing loans (NPL) slippage especially. They are looking for Rs 3,000-4,000 crore kind of net slippage number for this quarter. If they meet the lower end of slippage then people would be happy, but if they go to Rs 4,000 crore of net slippage then there would be some correction. Q: What about the private banks, do you expect asset quality there to be okay and credit growth also robust? A: Credit growth overall has been very weak for almost everybody. Within private sector there are banks like HDFC Bank, IndusInd Bank, Kotak Mahindra Bank who are growing 20-25% while ICICI Bank would be doing closer to 15-17%. We have a slightly divided view on credit growth, but on asset quality most of them would report stable numbers. In fact our view is that Yes Bank, ICICI Bank, HDFC Bank, IndusInd Bank would report good asset quality. Axis Bank would continue to report the amount of slippage which they did last quarter. They added around 5 billion on NPL and around 3.5 billion on restructuring. A similar number could be expected this quarter from Axis Bank. But, overall asset quality still looks good for private banks. _PAGEBREAK_ Q: What about the larger non banking financial companies (NBFC) like Rural Electrification Corporation (REC), Power Finance Corporation (PFC) and even LIC Housing Finance, what do you expect to hear from them? A: Asset quality wise all these three would be doing well. There is no problem account for REC, PFC last quarter. There is no problem of asset quality in LIC Housing. All these three companies should report decent number. We are not expecting any surprise from them. Q: What do you expect to see on Federal Bank in terms of earnings and are you working with a price target there? A: We have price target of Rs 550. It’s been one of our top pick and high conviction idea. They are doing pretty good job on the ground in terms of turning around the bank. They are putting in right frame of risk management, fee businesses they are developing. On the ground things are doing well, but especially on for the quarter if I see I would say stable to slightly improving margins, what we are expecting from them. On asset quality slippage on corporate book would continue, so we are expecting around Rs 3 billion of slippage for them but that is largely from the corporate side. On the retail and SME side, they are still showing good asset quality so their NPAs are in control there. They are growing well on the gold finance side so that is helping them in maintaining their margins. Overall it’s well capitalized bank with a strong management now. We still believe in the story. Q: What about the smaller private sector banks like Yes Bank, IndusInd Bank, Development Credit Bank (DCB)? What kind of results are you expecting and where do you stand with your recommendation to clients there? A: We cover Yes Bank and IndusInd Bank and both are doing well on the current account savings account (CASA) front especially Yes Bank. After the saving rates deregulation they are gaining CASA share and especially on the savings account. We are expecting around 2 percentage point improvement in CASA for them every quarter and they have done good job last quarter. On margins front, especially for Yes Bank, IndusInd Bank and almost on all private banks because of Q4 priority sector lending there has been a drag in Q1, which is why margins would be slightly lower. We are building in 15 bps compression for IndusInd and 5 bps compression for Yes Bank. There would be slight decline on margins, but overall growth wise we are expecting around 30% growth for IndusInd and around 20% growth for Yes Bank on profits.