Banks might see more pain in quarters ahead: Angel

In an interview to CNBC-TV18, Vaibhav Agarwal of Angel Broking spoke about his reading of the banking space and outlook. 

Below is an edited transcript of Vaibhav Agarwal's interview on CNBC-TV18.

Q: Canara looks like it is an ugly set of numbers specifically on asset quality and on net profits. What are your thoughts on that?

A: No actually the bottom-line has definitely come in well below our estimates. Since they met the net interest income line, clearly the stress could be at the other income or operating expenses level for them. The trend in asset quality remains quite weak and is more or less mirroring the same trends as other large PSU bank results that we have seen. So clearly the stress remains quite visible.

Q: Looking at the asset quality numbers for Canara Bank, do you think the stress has actually increased and gets worse from here on?

A: Yes, because even in this quarter the slippages have been high for Canara Bank. All the PSU banks managements have been guiding, almost no one has expressed any kind of confidence that the numbers would be better in third quarter. Most of them do expect further pain to come in the next couple of quarters as well.

Q: Do you downgrade the stock of Canara Bank? How much downside would you give the stock given the fact that there is still no optimism about the asset quality turning around and disappointing numbers?

A: There is a good probability that our estimates would reduce to an extent for Canara Bank as well. And at this point we would remain neutral on this stock as well. Infact, on the PSU space right now we do not have any buys.

Q: In terms of individual accounts or sectors where do you see the biggest stress for Canara Bank in terms of agri or SME? Which are the biggest accounts to have slipped in the last quarter and do you expect them to see further slippages this time around as well?

A: As far as sector wise it has been varied. We would not really point out any specific sector apart from metals, textiles which have seen stress. We will wait for further information from the management on this aspect. But broadly we have seen that across manufacturing sectors the stress continues for PSU banks including Canara Bank.

Q: A word on Dena Bank and what you made of the numbers? The stock is holding up in the green.

A: Again the numbers were not anything positive but relatively, the deterioration has been lower for Dena and that is why the stock is doing a little better. But again we do not really see them as materially good numbers and even on Dena our view right now is neutral.

Q: Andhra Banks numbers to us prima facie looked a bit disappointing but nonetheless that stock is holding up. Is there anything in the internals of the numbers which is keeping Andhra Bank fairly flat?

A: The bank generally had good profitability but we are quite concerned. In this quarter also they have seen asset quality deteriorating. But as far as we are concerned, there is a lot more pain, especially for bank like Andhra. So, we would not really take too much solace in any of the numbers for Andhra Bank in this quarter as well. We expect further pain to come in. So, that is another stock where we had a reduce and had a corrected 10 percent, but we would remain cautious on that bank.