In an interview to CNBC-TV18, Hemindra Hazari, HOR, Nirmal Bang Securities spoke about the bank stocks and his outlook for the sector.
Below is a verbatim transcript of the interview on CNBC-TV18
Q: Have you turned positive on the likes of Bank of India and Bank of Baroda?
A: I am positive on only Bank of India because their earnings growth was much better than what we had expected but broadly the rise in bank shares that we saw recently was with any merit because the broader economy is going through a very acute slowdown, many corporate are finding it difficult to pay their interest on the due date, the non-performing assets (NPAs) and the restructured standard loans by and large are rising very fast even faster than our expectations.
So, we do not see a turnaround in the economy. It is just that the way global capital flows are driving global markets and one has seen an upsurge in some of these bank stocks and whenever there is a slight scare that there would be a taper, one is finding the short taking place, but the broader economy is undergoing acute pain.
Q: Apart from Bank of India you won’t buy any other public sector undertaking (PSU) bank because you don’t believe that the asset quality pressures have troughed out just yet?
A: I would not buy any new private sector bank or private bank for that matter because both of them are exposed to the same underlying Indian economy and the corporate sector is under tremendous stress at this moment. There are certain banks and even State Bank of India (SBI) in a mid corporate segment where their gross non-performing asset (NPA) is about 10.7 percent; they have grown the credit in this segment by 28 percent in the second quarter. I do not understand the reason why such a large bank is growing such a large portfolio at a high pace.
Q: The stress in the asset space is well recognized, the argument proffered by people is that it is in the price that PSU banks are available at sometimes one-third the book. Is that an argument and specifically would you have anything to say on UCO Bank. It is not that at 5.3 percent gross non-performing loans (NPLs) is a pretty picture but is it showing you any signs of recovery, improvement?
A: I do not cover UCO Bank but to answer your question based on valuations that to me is an argument from trading perspective or where you do expect some revival in the Indian economy and therefore the quality of the book to improve. But our assessment of the Indian economy is that there is going to be a further slowdown. So, in such an environment I do not see that one should be buying on value or something is very close to an adjusted book value then I can understand, today most of the reported book value in the PSU space is trading about half of their book values or even 0.4 but on adjusted book value it is much higher.
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