Microsec has come out with its report on "BFSI quarterly performance analysis (Q4FY13)". The research firm believes the Housing and Automobile finance NBFCs themselves may see revival if interest rates decline further. However, with an expectation of economic recovery is in near term, NBFCs are all set for a strong growth in the coming years.
Microsec: BFSI quarterly performance analysis (Q4FY13)
The performance of real economy drives the fortune of Banking system. The Indian Gross Domestic Product (GDP) slowed down to 4.8 percent in Q4FY13 as against 5.1 percent in the same quarter last year. The slowdown in the economy has put the Banking business (Specially, Public Sector Banks) in trouble. Weak global and domestic economic scenario, high inflation which lead to high interest rate and also, adverse regulatory environment in some business such as Mining, Power, Infrastructure has affected the entire capital intensive industry. The financial problems of Indian companies are now being reflected in the loan quality of Indian Banks that have lent them money. In this quarter, the Indian Banks have reported a marginal improvement in its Non Performing Asset (NPA) figures on account of higher restructuring of bad loans, write-offs and some recovery of it. Slowing growth in Asia’s third largest economy, high cost of capital and projects delay have dented the ability of Indian companies to repay their loans which has deteriorated the loan portfolio of Indian Banks and mounted pressure to restructuring of bad loans. Moreover, higher restructuring lead to higher provisioning requirement (2.75 percent), hit the bottom line of Indian Banks.
In Q4FY13 again, Private Sector Banks kept their shine and prestige as they continued maintain good performance over the previous quarters and also outshone their Public sector peers. Stable asset quality with healthy loan growth coupled with Banks’ proactive risk management and hassle free services to the customers has widened the gap of performance compared to their Public Sector peers. Despite challenging environment, weak micro and macroeconomic condition, the profitability of Indian Banking Industry remained flat at INR20185 crores courtesy by Private Banks.
Outlook: Indian Government has taken number of steps to revive GDP growth and rekindle the growth of Indian companies and delayed projects. WPI inflation also came down under the RBI’s comfort level in April 2013 to 4.89 percent which may bring down the interest rate going forward which is expected to act as a positive factor for the rate sensitive sectors. Hence, all these positive factors and activities boosted aur confidence in the Banking space. We believe, Banks would be benefited in a rising GDP growth scenario. We are more confidant on Private Banks owing to stable asset quality and strong risk management.
On the NBFC front, We believe, the Housing and Automobile finance NBFCs themselves may see revival if interest rates decline further. However, with an expectation of economic recovery is in near term, NBFCs are all set for a strong growth in the coming years. We also expect that new draft guidelines on NBFCs proposed by the Reserve Bank of India (RBI) in December 2012 (based on the Usha Thorat Committee Report) will strengthen the NBFC sector fundamentally in the long-term.
Taking into consideration various valuation and fundamental parameters, coupled with quarterly performances (Q4FY13), we recommend the following Banks and NBFCs as our top picks:-
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