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Last Updated : Jan 25, 2018 11:10 AM IST | Source: Moneycontrol.com

Nifty Bank cracks 3.5%, react negatively to recap plan; Brokerages pick SBI as top PSU bet

A total of Rs 35,828 crore will be infused into nine banks that haven't triggered prompt corrective action (PCA), including State Bank of India (SBI), Punjab National Bank and Bank of Baroda, among others, while Rs 52,311 crore will be pumped into 11 banks that have triggered PCA, including IDBI, Central Bank of India, and UCO Bank.

Nifty PSU banking index cracked 3 percent on Thursday morning after the government announced its bank recapitalisation plan wherein it plans to infuse Rs 88,139 crore into 20 PSBs before March.

The biggest loser was Punjab National Bank, followed by Bank of Baroda, State Bank of India and Oriental Bank of Commerce.

The government on Wednesday said that it will infuse Rs 88,139 crore through recapitalisation bonds and budgetary support in this financial year, a move aimed at strengthening these banks' lending capacity and thereby pulling the country out of a three-year low growth slump.

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A total of Rs 35,828 crore will be infused into nine banks that haven't triggered prompt corrective action (PCA), including State Bank of India (SBI), Punjab National Bank and Bank of Baroda, among others, while Rs 52,311 crore will be pumped into 11 banks that have triggered PCA, including IDBI, Central Bank of India, and UCO Bank.

“State Bank of India will get Rs 8,800 crore, Rs 3,571 crore for Oriental Bank of Commerce, Rs 3,045 billion for Dena Bank, Rs 5,158 crore for Central Bank of India, Rs 4,694 billion for Indian Overseas Bank, Rs 9,232 billion for Bank of India,” banking secretary Rajeev Kumar said.

Moneycontrol takes a sneak peak into what top research houses think about the government's recap plan:

JP Morgan: Exit PSU banks, Axis Bank top pick

The global research firm is of the view that 60 percent of capital allocated to weaker banks will limit access to growth capital for large banks adding that loan growth recovery is likely to be delayed as banks would lack growth capital.

The house expects capital shortfall of 59-72 percent for banks within coverage while focus on SME would raise long-term risks. JP Morgan recommends investors to switch out of PSU banks with Axis Bank as the top value pick.

Morgan Stanley: Recap to help material portion of uncovered NPLs

Global research firm Morgan Stanley is of the view that allocation should help banks meet material portion of uncovered NPLs while it may also help some banks come out of PCA. It is of the view that SBI, PNB and BoB may see an increase of 50, 120 and 125 bps in CET 1 ratios.

The house feels that small banks could do well in near term with preferred stocks amongst corporate lenders remain as larger names.

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Macquarie: Recap aimed at bailout over growth, Axis Bank, ICICI Bank top picks

According to Macquarie, recapitalisation plan is short to meet provisioning requirement and move to IFRS by FY19. The firm is of the view that first tranche is skewed towards bailouts rather than growth with a hope that the next tranche is concentrated to a few large and disciplined banks.

The house estimates that Bank of India will receive more while State Bank of India will receive far less. Macquarie has maintained Axis Bank and ICICI Bank as best plays for recovery theme while on the other hand the firm likes State Bank of India from the PSU banking space.

Credit Suisse: Recap plans on expected lines, SBI, BoB, PNB top PSU picks

Global research firm Credit Suisse believes that capital infusion is likely to translate 5-100 ppercent equity dilution and improve CET-1 by 50-500 bps. The government's recap details were on expected lines. It expects 55 percent of amount to be used for provisioning and meeting Basel-III requirements.

The house continues to prefer State Bank of India, Bank of Baroda and Punjab National Bank among the PSU lenders.

CLSA: Recap meets capital needs, SBI top PSU pick

Research firm CLSA feels that recapitalisation plans meets capital needs while follow-through in FY19 will be key. The house continues to prefer banks with a stronger deposit franchise and better quality.

The house is of the view that the move can get PSU banks back in lending market while pace of market share erosion may ease. According to the research firm, State Bank of India is the top pick in the PSU banking space

BofAML: Recap skewed towards meeting regulatory requirements

Global resarch firm BofAML is of the view that current tranche of recapiotalisation is skewed towards meeting regulatory requirements adding that residual infusion next year may be allocated to better performers. The house feels that SBI and BoB are likely to be primary beneficiaries of capital infusion.

The house added that capital infusion may aid faster resolution of asset quality issues.

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First Published on Jan 25, 2018 10:58 am
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