Q2 earnings analysis: Sell banks, advises Nirmal Bang

India's largest private sector lender ICICI Bank reported a better than expected 30% year-on-year jump in its Q2 net profit. Public sector lender Punjab National Bank (PNB) too came out with its numbers today and it posted a 11.6 percent year-on-year fall in net profit.

Hemindra Hazari of Nirmal Bang Securities believes an aggressive growth in its credit profile have resulted in PNB's declining profits. However, he is surprised with ICICI Bank's performance. But, he holds a sell on banking stocks because they are lending to the same set of corporates. Here is the edited transcript of the interview on CNBC-TV18. Q: Your take on Punjab National Bank (PNB) as well as ICICI Bank?
A: PNB is going to be impacted because it has been growing its credit quite aggressively over the last few years. For a very large bank which grows its credit so aggressively, a slowdown in the economy is bound to impact the bank and PNB is paying the price currently. Q: What about ICICI Bank?
A: ICICI Bank is a positive surprise because the numbers are higher than consensus; asset quality also appears to be much better than what people though it would be. But, I have a sell on all these banks because I believe between a public sector undertaking (PSU) and large private banks, there should not be any difference because they are both granting credit to the same set of corporates. It is just a matter of time before the asset quality problems start surfacing in large private banks. Q: They have had a huge retail thrust in the last few years, would that mean the outperformance is going to be continued?
A: In the case of ICICI Bank, if you notice they have been contracting their retail book but their corporate book have been expanding. It is from the corporate book where the problems are coming today. Even in a high risk corporate like Deccan Chronicle, you will find that a lot of the new private sector banks are not only present but, are present with a very large exposure which unfortunately, you do not see in the kind of NPA increase if you link it to the exposures they have for example in Deccan Chronicle. Q: How worried would you be about PNB's asset quality going forward because everyone or a lot of the analysts thought that the last quarter was possibly the worst in terms of slippages for PNB? It seems like this quarter might be worse. How worried would you be going forward on PNB?
A: I would be worried on PNB as well as on any of these large banks and even a private bank like ICICI Bank which has been growing its corporate book because it all depends on what your outlook is for the Indian economy. Our outlook currently is, the stagnation will continue and may even deteriorate. In such a situation, any bank which has grown on corporate side aggressively is going to face a downturn and one has to be prepared for that.