Capital infusion won't help PSU banks; stay away: IDBI Cap

Investors are cautious as far as PSU banks are concerned because nothing good is happening to the lot, instead they are getting pressurised from all fronts, says Jignesh Shial, IDBI Capital Markets. Even the Rs 14,000 crore earmarked by the government for capital infusion into banks may not help solve issues now, he says.

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He does not advocate buying PSU banks only on the basis of recapitalisation. According to him, right now it is more of a necessity rather than something advantageous happening for them.
Shial told CNBC-TV18, neither PSU banks nor private sector banks' asset qualities are giving any positive kind of momentum. Below is the verbatim transcript of Jignesh Shial's interview on CNBC-TV18 Q: Today you are seeing a bit of selling in PSUs. Do you think we should be very worried about their shareholders asking them to offer consumer durables loans at lower rates? They are all going to announce about 0.5-1 percentage point cut in consumer durable loans. Is that big enough for you to take a negative view on the stock itself?
A: No, it is not exactly about the same. If you had seen the previous rally whatever had happened that was basically on the back of recapitalisation. It was with a condition now coming up that they had to do certain rate cuts and all. So whatever news that has happened from the Punjab National Bank (PNB) side as well, they are also getting cautious that they cannot do more than 1 percent or something, provided they had to offer it not only for the existing ones but also for the previous ones.
So for PSU asset quality concern is not something new. That is already been done. Margin pressure is already getting done, that is also known to the markets. By this means they are anyhow going to get facing more and more pressure on the margins. That is something that the investors are getting cautious about. So nothing good is happening and you are getting little pressurised on all the fronts - that is consistently happening. That is why probably investors are a little cautious. Q: Would you be positive if the capital by the government is announced for these banks anytime soon?
A: I do not think so it is only the capital infusion which is going to solve the issues as of now. Obviously that is one of the positive triggers. It has become a mandate now and that is why it is happening rather than it is infused for the sake of growth or something like that. So no I will not be highly advocating for buying PSUs only on the basis of recapitalisation that is happening from their side. It is a necessity rather than something advantageous happening for them. Q: What are you expecting in terms of asset quality from the PSU banking space in Q2?
A: We spoke to many managements recently. We had a discussion not only with the PSUs, but the private sector too. On asset quality front, nobody is giving us a positive kind of momentum, everybody is seeking there would be a little more damage than what they were estimating previously.
We see asset quality in three different ways how it is actually panning out. One is the fresh slippages that is going to happen from the standard asset book and that slippages are remaining at a higher level. The second is addition into the restructured book and that has been again at an elevated level. Even the previous customer data integration (CDI) data also shows that the situation is not at all improving and even some of the PSUs have indicated that the restructuring would be consistently high even for the next 2-3 quarters. The third worry now which has started emerging which we are a little more focused on is the slippages from the existing restructured book. If you see it is the major of the restructuring either for PSUs or large private banks has happened in the last 24 months down the line.
Many of them after getting restructured had been in the moratorium period. As this moratorium period is getting over gradually the prepayments or the schedules of the repayments are required, whether they will be able to maintain or whether they will slip into Non-Performing Assets (NPA) remain a concern.
Average trend which we have witnessed had been that the slippage from the restructured book had been 12-15 percent for PSU banks, but that trend is also likely to remain higher. It could reach up to 20-22 percent from the restructured book. That restructured book can slip into an NPA. That remains a cause of concern going forward. On asset quality front, the sense that we are getting here is that the picture is pretty much unclear or it is still to remain a major cause of concern at least for this quarter.