Yes Bank top pick in banking space: Angel Broking
Angel Broking has come out with its report on banking sector. According to the research firm, Yes Bank is one of the stronger banks in terms of balance sheet quality and asset profile.
September 14, 2012 / 15:04 IST
Angel Broking has come out with its report on banking sector. According to the research firm, Yes Bank is one of the stronger banks in terms of balance sheet quality and asset profile.
Recently, some of the larger banks have started reducing their fixed retail term deposit rates. State Bank of India (SBI), ICICI Bank and HDFC Bank have all reduced their deposit rates by 50-100bp and are now offering peak FD rates (1-3 year tenure) of 8.5-8.75%. The smaller banks are still offering ~9.25-9.5% levels, however may follow suit and reduce their deposit rates in the coming weeks. However we do not see this as a materially positive catalyst for the banking sector as a whole, since the cuts come in the backdrop of a combination of weak macro fundamentals i.e. declining GDP growth and rising inflation outlook.Credit growth continues to moderate; Banks clamor for retail assets Incremental credit growth for banks continues to remain weak amid a deteriorating economic growth environment. The credit growth as of August 24, 2012 stands at a moderate 16.7% yoy, however comparing on an incremental basis, the FY2012 YTD credit mobilisation has only been Rs17,000cr compared to ~Rs1.1lakh cr over the same period in the last year (lower by 83.9% yoy). The pipeline for banks, as indicated by their managements, remains thin, and in our view credit growth could fall even lower to 14-15% by the year end. The banking sector (especially PSU banks) being already riddled with higher NPAs has been shifting its focus towards retail lending. Most banks recently have reduced their retail lending rates across home, auto, personal and educational segments. The clamor for shoring up retail assets has intensified lately as currently retail lending is offering higher risk adjusted yields compared to other segments.Deposit rates reduction not due to higher deposit growth but on account of even lower credit growth The deposit mobilisation, similar to credit off-take, has also been on a declining trend (14.1% yoy as of August 24, 2012). The FY2012 YTD deposit mobilisation stands at Rs1.8lakh cr compared to ~Rs3.1lakh cr over the same period in the last year (lower by 41.3% yoy). But as incremental credit growth has been lower, liquidity has improved allowing banks some space to cut rates. In any case, going forward with inflationary expectations still high (proposed hikes in electricity tariffs, revision in diesel prices, agriculture bottlenecks and increase in MSP), we do not expect any meaningful further downward revisions in deposit rates in FY2013.
Wholesale oriented banks to benefit relatively; Reiterate Yes bank as one of our top picksWhile declining deposit rates are not indicative, in our view, of a positive outlook for the sector for above reasons, however relatively speaking, banks reliant on term deposits are likely to benefit. Especially, the cost of funds on the shorter end of the yield curve have eased off significantly compared to the longer end. The 3month CP and CD rates have declined by 200-250bp since the start of FY2012 reflecting the moderation in liquidity environment. The easing off of liquidity concerns is also visible in the sharp reduction in LAF borrowings by banks (Rs42000cr in 2QFY2013 compared to Rs97,000cr in 1QFY2013). Hence, the current interest rate scenario, in our view, benefits relatively wholesale and term deposit dependent banks, which mainly comprise mid-sized banks. However, with asset quality concerns still high for mid-sized PSU banks, we remain cautious on a large majority of them inspite of cheap valuations (Syndicate bank and OBC are amongst the few we have a Buy on). Among the mid-sized banks, Yes Bank is one of the stronger banks in terms of balance sheet quality and asset profile, and with the wholesale interest rates easing significantly over the last few months, we reiterate it (TP of Rs453) as one of our top picks.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
