Q2 results: What to expect from banks

All listed companies will declare their results for the quarter ending September 30, 2012. In an interview to CNBC-TV18, Vaibhav Agrawal of Angel Broking speaks about his expectations from the banking sector.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: What are you expecting in terms of asset quality for private banks? In the last quarter, we saw a bit of negativity coming in or pressure coming in, in terms of asset quality for a couple of the private banks such as Axis Bank, Kotak Mahindra Bank etc. How would you be placed on them in this quarter? A: We are factoring in higher slippages. We have heard about accounts that may possibly get classified as NPA in this quarter as well. There are some chunky accounts that may come up. So, certainly, for the year, we are factoring higher slippages for private banks and including in this quarter. For instance, Axis Bank, we expect around atleast Rs 700-750 crore of slippages coming in this quarter compared to Rs 450 crore slippage in the last quarter. Q: Where is the best performance coming in the second quarter? A: It will continue to mirror the trends we have seen in the last few quarters. In terms of private banks, we still expect a better performance at the earnings level with around 25% earnings growth coming in. Banks like HFDC will continue with their very strong earnings growth. On the PSU side again, we remain quite cautious. The numbers are likely to be volatile. Some banks may give some positive surprises, but the general trend will remain negative for PSU banks in this quarter as well. Q: Do you have anything in terms of worry or a feeling that the worries are over in Union Bank of India, Canara Bank and Punjab National Bank? A: Nothing very specific, worries related to particular accounts or anything like that. But, generally, we do not expect an immediate improvement in asset quality, while at the same time we are not seeing significant deterioration from what they saw in Q1. Q: How exactly would you be placed on Punjab National Bank (PNB) in terms of asset quality trends this quarter? A: We are expecting more or less similar kind of slippage numbers etc coming in this quarter as well. We are remaining cautious in our estimates. We prefer that we build in negative numbers and they surprise us positively rather than assuming an improvement as of now because there are no real triggers right now to assume that. Q: If you had to take positions ahead of the earnings season or the banking earning season for Q2FY13, what would you recommend investors at this point in time possibly building positions going into Q2FY13? A: We expect positive numbers from private banks. It makes sense even now to go for those banks because earnings are on your side. As far as PSU banks are concerned, we were recommending bottom fishing about a month back in stocks such as Union, PNB etc. They have already bounced back 30% from their lows. In PSU, once again we would recommend investors to remain cautious right now because the valuations have risen quite a bit in the last month. In terms of negative surprises, we would remain cautious on some of the smaller banks like Allahabad, Andhra etc where we expect negative numbers. So, we would recommend cautiousness on the PSU space. _PAGEBREAK_ Q: What about State Bank? A: Compared to the kind of net slippages that State Bank of India had seen last quarter, they will see lower level of net slippages in this quarter. So, from an earnings point of view, this quarter should be reasonably decent with about 28 to 30 percent earnings growth as well for the bank. However, in terms of our recommendations, right now, we have a neutral rating because the stock has really run up very sharply in the last month or so. Q: You have a buy on ICICI and Axis, is it? A: Yes, we have a buy on Axis, ICICI as well as Yes Bank on the private side. In terms of PSU, we just have a buy on United Bank and an accumulate rating on Union and Punjab National Bank right now. Q: How would you be placed on Yes Bank? A: That is one bank, which we believe, will deliver good performance in this quarter. They are also going to be aided by the fact that they are very reliant on wholesale deposits where the cost of funds is also coming down in this quarter. So, generally we expect good earnings performance, atleast 30 percent earnings growth for the stock and it is one of our top picks in the banking space. Q: Would you say restructured assets issue has peaked off? A: I think in restructure obviously the big chunk was State Electricity Boards (SEBs). There is clarity now. It will happen through the package. Apart from that, we will continue to see CDR related restructuring coming in, but quantum will be lower compared to what we have seen in earlier quarters. Q: Deccan Chronicle is the big NPL on several banks this time around. Will you mark any specific bank down because of that? A: In Deccan Chronicle, as we know the banks, which do have an exposure such as Axis Bank, ICICI Bank, we may see some negatives. Canara Bank has already indicated that they will recognise it as an NPA. That is coming in. Yes Bank also has an exposure, but Rs 100 crore out of that is to the IPL team, so they will have the entire amount as NPA, remains to be seen. But the news is out as far as the banks which are exposed and they may have to see NPAs on that.